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Private Equity and Workers: Modeling and Measuring Monopsony, Implicit Contracts, and Efficient Reallocation
June 2025
Working Paper Number:
CES-25-37
We measure the real effects of private equity buyouts on worker outcomes by building a new database that links transactions to matched employer-employee data in the United States. To guide our empirical analysis, we derive testable implications from three theories in which private equity managers alter worker outcomes: (1) exertion of monopsony power in concentrated markets, (2) breach of implicit contracts with targeted groups of workers, including managers and top earners, and (3) efficient reallocation of workers across plants. We do not find any evidence that private equity-backed firms vary wages and employment based on local labor market power proxies. Wage losses are also very similar for managers and top earners. Instead, we find strong evidence that private equity managers downsize less productive plants relative to productive plants while simultaneously reallocating high-wage workers to more productive plants. We conclude that post-buyout employment and wage dynamics are consistent with professional investors providing incentives to increase productivity and monitor the companies in which they invest.
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Firm Heterogeneity, Misallocation, and Trade
May 2025
Working Paper Number:
CES-25-33
To what extent do domestic distortions influence the gains from trade? Using data from Chinese manufacturing surveys and U.S. census records, I document two novel stylized facts: (1) Larger producers in China exhibit lower revenue productivity, whereas larger producers in the U.S. exhibit higher revenue productivity. (2) Larger exporters in China exhibit lower export intensity, whereas larger exporters in the U.S. exhibit higher export intensity. A model of heterogeneous producers shows that only the U.S. patterns are consistent with an efficient allocation. To reconcile the observed patterns in China, I introduce producer- and destination-specific subsidies and estimate the model without imposing functional form assumptions on the joint distribution of productivity and subsidy rates. Accounting for distortions in China leads to substantially smaller estimated gains from trade.
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The Rising Returns to R&D: Ideas Are Not Getting Harder to Find
May 2025
Working Paper Number:
CES-25-29
R&D investment has grown robustly, yet aggregate productivity growth has stagnated. Is this because 'ideas are getting harder to find'? This paper uses micro-data from the US Census Bureau to explore the relationship between R&D and productivity in the manufacturing sector from 1976 to 2018. We find that both the elasticity of output (TFP) with respect to R&D and the marginal returns to R&D have risen sharply. Exploring factors affecting returns, we conclude that R&D obsolescence rates must have risen. Using a novel estimation approach, we find consistent evidence of sharply rising technological rivalry. These findings suggest that R&D has become more effective at finding productivity-enhancing ideas but these ideas may also render rivals' technologies obsolete, making innovations more transient.
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The Rise of Industrial AI in America: Microfoundations of the Productivity J-curve(s)
April 2025
Working Paper Number:
CES-25-27
We examine the prevalence and productivity dynamics of artificial intelligence (AI) in American manufacturing. Working with the Census Bureau to collect detailed large-scale data for 2017 and 2021, we focus on AI-related technologies with industrial applications. We find causal evidence of J-curve-shaped returns, where short-term performance losses precede longer-term gains. Consistent with costly adjustment taking place within core production processes, industrial AI use increases work-in-progress inventory, investment in industrial robots, and labor shedding, while harming productivity and profitability in the short run. These losses are unevenly distributed, concentrating among older businesses while being mitigated by growth-oriented business strategies and within-firm spillovers. Dynamics, however, matter: earlier (pre-2017) adopters exhibit stronger growth over time, conditional on survival. Notably, among older establishments, abandonment of structured production-management practices accounts for roughly one-third of these losses, revealing a specific channel through which intangible factors shape AI's impact. Taken together, these results provide novel evidence on the microfoundations of technology J-curves, identifying mechanisms and illuminating how and why they differ across firm types. These findings extend our understanding of modern General Purpose Technologies, explaining why their economic impact'exemplified here by AI'may initially disappoint, particularly in contexts dominated by older, established firms.
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Growth is Getting Harder to Find, Not Ideas
April 2025
Working Paper Number:
CES-25-21
Relatively flat US output growth versus rising numbers of US researchers is often interpreted as evidence that "ideas are getting harder to find." We build a new 46-year panel tracking the universe of U.S. firms' patenting to investigate the micro underpinnings of this claim, separately examining the relationships between research inputs and ideas (patents) versus ideas and growth. Over our sample period, we find that researchers' patenting productivity is increasing, there is little evidence of any secular decline in high-quality patenting common to all firms, and the link between patents and growth is present, differs by type of idea, and is fairly stable. On the other hand, we find strong evidence of secular decreases in output unrelated to patenting, suggesting an important role for other factors. Together, these results invite renewed empirical and theoretical attention to the impact of ideas on growth. To that end, our patent-firm bridge, which will be available to researchers with approved access, is used to produce new, public-use statistics on the Business Dynamics of Patenting Firms (BDS-PF).
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Contrasting the Local and National Demographic Incidence of Local Labor Demand Shocks
July 2024
Working Paper Number:
CES-24-36
This paper examines how spatial frictions that differ among heterogeneous workers and establishments shape the geographic and demographic incidence of alternative local labor demand shocks, with implications for the appropriate level of government at which to fund local economic initiatives. LEHD data featuring millions of job transitions facilitate estimation of a rich two-sided labor market assignment model. The model generates simulated forecasts of many alternative local demand shocks featuring different establishment compositions and local areas. Workers within 10 miles receive only 11.2% (6.6%) of nationwide welfare (employment) short-run gains, with at least 35.9% (62.0%) accruing to out-of-state workers, despite much larger per-worker impacts for the closest workers. Local incidence by demographic category is very sensitive to shock composition, but different shocks produce similar demographic incidence farther from the shock. Furthermore, the remaining heterogeneity in incidence at the state or national level can reverse patterns of heterogeneous demographic impacts at the local level. Overall, the results suggest that reduced-form approaches using distant locations as controls can produce accurate estimates of local shock impacts on local workers, but that the distribution of local impacts badly approximates shocks' statewide or national incidence.
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Good Dispersion, Bad Dispersion
March 2024
Working Paper Number:
CES-24-13
We document that most dispersion in marginal revenue products of inputs occurs across plants within firms rather than between firms. This is commonly thought to reflect misallocation: dispersion is 'bad.' However, we show that eliminating frictions hampering internal capital markets in a multi-plant firm model may in fact increase productivity dispersion and raise output: dispersion can be 'good.' This arises as firms optimally stagger investment activity across their plants over time to avoid raising costly external finance, instead relying on reallocating internal funds. The staggering in turn generates dispersion in marginal revenue products. We use U.S. Census data on multi-plant manufacturing firms to provide empirical evidence for the model mechanism and show a quantitatively important role for good dispersion. Since there is less scope for good dispersion in emerging economies, the difference in the degree of misallocation between emerging and developed economies looks more pronounced than previously thought.
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Collaborative Micro-productivity Project: Establishment-Level Productivity Dataset, 1972-2020
December 2023
Working Paper Number:
CES-23-65
We describe the process for building the Collaborative Micro-productivity Project (CMP) microdata and calculating establishment-level productivity numbers. The documentation is for version 7 and the data cover the years 1972-2020. These data have been used in numerous research papers and are used to create the experimental public-use data product Dispersion Statistics on Productivity (DiSP).
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Output Market Power and Spatial Misallocation
November 2023
Working Paper Number:
CES-23-57
Most product industries are local. In the U.S., firms selling goods and services to local consumers account for half of total sales and generate more than sixty percent of the nation's jobs. Competition in these industries occurs in local product markets: cities. I propose a theory of such competition in which firms have output market power. Spatial differences in local competition arise endogenously due to the spatial sorting of heterogeneous firms. The ability to charge higher markups induces more productive firms to overvalue locating in larger cities, leading to a misallocation of firms across space. The optimal policy incen tivizes productive firms to relocate to smaller cities, providing a rationale for commonly used place-based policies. I use U.S. Census establishment-level data to estimate markups and to structurally estimate the model. I document a significant heterogeneity in markups for local industries across U.S. cities. Cities in the top decile of the city-size distribution have a fifty percent lower markup than cities in the bottom decile. I use the estimated model to quantify the general equilibrium effects of place-based policies. Policies that remove markups and relocate firms to smaller cities yield sizable aggregate welfare gains.
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Temperature and Local Industry Concentration
October 2023
Working Paper Number:
CES-23-51
We use plant-level data from the US Census of Manufacturers to study the short and long run effects of temperature on manufacturing activity. We document that temperature shocks significantly increase energy costs and lower the productivity of small manufacturing plants, while large plants are mostly unaffected. In US counties that experienced higher increases in average temperatures between the 1980s and the 2010s, these heterogeneous effects have led to higher concentration of manufacturing activity within large plants, and a reallocation of labor from small to large manufacturing establishments. We offer a preliminary discussion of potential mechanisms explaining why large manufacturing firms might be better equipped for long-run adaptation to climate change, including their ability to hedge across locations, easier access to finance, and higher managerial skills.
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