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U.S. Banks' Artificial Intelligence and Small Business Lending: Evidence from the Census Bureau's Annual Business Survey
February 2025
Working Paper Number:
CES-25-07
Utilizing confidential microdata from the Census Bureau's new technology survey (technology module of the Annual Business Survey), we shed light on U.S. banks' use of artificial intelligence (AI) and its effect on their small business lending. We find that the percentage of banks using AI increases from 14% in 2017 to 43% in 2019. Linking banks' AI use to their small business lending, we find that banks with greater AI usage lend significantly more to distant borrowers, about whom they have less soft information. Using an instrumental variable based on banks' proximity to AI vendors, we show that AI's effect is likely causal. In contrast, we do not find similar effects for cloud systems, other types of software, or hardware surveyed by Census, highlighting AI's uniqueness. Moreover, AI's effect on distant lending is more pronounced in poorer areas and areas with less bank presence. Last, we find that banks with greater AI usage experience lower default rates among distant borrowers and charge these borrowers lower interest rates, suggesting that AI helps banks identify creditworthy borrowers at loan origination. Overall, our evidence suggests that AI helps banks reduce information asymmetry with borrowers, thereby enabling them to extend credit over greater distances.
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Workers' Job Prospects and Young Firm Dynamics
January 2025
Working Paper Number:
CES-25-09
This paper investigates how worker beliefs and job prospects impact the wages and growth of young firms, as well as the aggregate economy. Building a heterogeneous-firm directed search model where workers gradually learn about firm types, I find that learning generates endogenous wage differentials for young firms. High-performing young firms must pay higher wages than equally high-performing old firms, while low-performing young firms offer lower wages than equally low-performing old firms. Reduced uncertainty or labor market frictions lower the wage differentials, thereby enhancing young firm dynamics and aggregate productivity. The results are consistent with U.S. administrative employee-employer matched data.
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The Effect of Oil News Shocks on Job Creation and Destruction
January 2025
Working Paper Number:
CES-25-06
Using data from the Annual Survey of Manufactures (ASM) and the Census of Manufacturing (CMF), we construct quarterly measures of job creation and destruction by 3-digit NAICS industries spanning from 1980Q3-2016Q4. These long series allow us to address three questions regarding the effect of oil news shocks. What is the average effect of oil news shocks on sectoral labor reallocation? What characteristics explain the observed heterogeneity in the average responses across industries? Has the response of US manufacturing changed over time? We find evidence that oil news shocks exert only a moderate effect on total manufacturing net employment growth but lead to a significant increase in job reallocation. However, we find a high degree of heterogeneity in responses across industries. We then show that the cross-industry variation in the sensitivity of net employment growth and excess job reallocation to oil news shocks is related to differences in energy costs, the rate of energy to capital expenditures, and the share of mature firms in the industry. Finally, we illustrate how the dynamic response of sectoral job creation and destruction to oil news shocks has declined since the mid-2000s.
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A Granular Look into Firms' Cash Portfolios
January 2025
Working Paper Number:
CES-25-02
This paper uses confidential Census data to provide a granular look into the U.S. firms' cash holding portfolios encompassing nearly four decades. The data provide information on short-term investment securities held in the portfolios, such as time deposits, commercial paper and government securities in addition to cash. The security-level information reveals that portfolios of the same size can have very different levels of liquidity and riskiness as the composition of securities varies considerably across firms and over time. Firms with strong precautionary motives tend to allocate more toward relatively more liquid and less risky securities. Firms actively rebalance their portfolios in response to changing economic conditions or idiosyncratic shocks to securities they hold. Event studies using shocks to Treasury securities and commercial paper shows firms shifting away from affected securities and simultaneously adjusting weights of other securities.
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Entry Costs Rise with Growth
October 2024
Working Paper Number:
CES-24-63
Over time and across states in the U.S., the number of firms is more closely tied to overall employment than to output per worker. In many models of firm dynamics, trade, and growth with a free entry condition, these facts imply that the costs of creating a new firm increase sharply with productivity growth. This increase in entry costs can stem from the rising cost of labor used in entry and weak or negative knowledge spillovers from prior entry. Our findings suggest that productivity-enhancing policies will not induce firm entry, thereby limiting the total impact of such policies on welfare.
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Internal Migration in the U.S. During the COVID-19 Pandemic
September 2024
Working Paper Number:
CES-24-50
Survey and administrative internal migration data disagree on whether the COVID-19 pandemic increased or decreased mobility in the U.S. Moreover, though scholars have theorized and documented migration in response to environmental hazards and economic shocks, the novel conditions posed by a global pandemic make it difficult to hypothesize whether and how American migration might change as a result. We link individual-level data from the United States Postal Service's National Change of Address (NCOA) registry to American Community Survey (ACS) and Current Population Survey (CPS-ASEC) responses and other administrative records to document changes in the level, geography, and composition of migrant flows between 2019 and 2021. We find a 2% increase in address changes between 2019 and 2020, representing an additional 603,000 moves, driven primarily by young adults, earners at the extremes of the income distribution, and individuals (as opposed to families) moving over longer distances. Though the number of address changes returned to pre-pandemic levels in 2021, the pandemic-era geographic and compositional shifts in favor of longer distance moves away from the Pacific and Mid-Atlantic regions toward the South and in favor of younger, individual movers persisted. We also show that at least part of the disconnect between survey, media, and administrative/third-party migration data sources stems from the apparent misreporting of address changes on Census Bureau surveys. Among ACS and CPS-ASEC householders linked to NCOA data and filing a permanent change of address in their 1-year survey response reference period, only around 68% of ACS and 49% of CPS-ASEC householders also reported living in a different residence one year ago in their survey response.
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Aggregation Bias in the Measurement of U.S. Global Value Chains
September 2024
Working Paper Number:
CES-24-49
This paper measures global value chain (GVC) activity, defined as imported content of exports, of U.S. manufacturing plants between 2002 and 2012. We assesses the extent of aggregation bias that arises from relying on industry-level exports, imports, and output to establish three results. First, GVC activity based on industry-level data underestimate the actual degree of GVC engagement by ignoring potential correlations between import and export activities across plants within industries. Second, the bias grew over the sample period. Finally, unlike with industry-level measures, we find little slowdown in GVC integration by U.S. manufacturers.
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Competition, Firm Innovation, and Growth under Imperfect Technology Spillovers
July 2024
Working Paper Number:
CES-24-40
We study how friction in learning others' technology, termed 'imperfect technology spillovers,' incentivizes firms to use different types of innovation and impacts the implications of competition through changes in innovation composition. We build an endogenous growth model in which multi-product firms enhance their products via internal innovation and enter new product markets through external innovation. When learning others' technology takes time due to this friction, increased competitive pressure leads firms with technological advantages to intensify internal innovation to protect their markets, thereby reducing others' external innovation. Using the U.S. administrative firm-level data, we provide regression results supporting the model predictions. Our findings highlight the importance of strategic firm innovation choices and changes in their composition in shaping the aggregate implications of competition.
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The Impact of Immigration on Firms and Workers: Insights from the H-1B Lottery
April 2024
Working Paper Number:
CES-24-19
We study how random variation in the availability of highly educated, foreign-born workers impacts firm performance and recruitment behavior. We combine two rich data sources: 1) administrative employer-employee matched data from the US Census Bureau; and 2) firm level information on the first large-scale H-1B visa lottery in 2007. Using an event-study approach, we find that lottery wins lead to increases in firm hiring of college-educated, immigrant labor along with increases in scale and survival. These effects are stronger for small, skill-intensive, and high-productivity firms that participate in the lottery. We do not find evidence for displacement of native-born, college-educated workers at the firm level, on net. However, this result masks dynamics among more specific subgroups of incumbents that we further elucidate.
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Outsourcing Dynamism
December 2023
Working Paper Number:
CES-23-64
This paper investigates the increasing importance of domestic outsourcing in U.S. manufacturing. Under domestic outsourcing, the agency is the employer of record for temporary workers, though they perform their tasks at the client business' premises. On a yearly basis, one in two manufacturing plants hires at least some of its workers through a temporary help agency. Furthermore, domestic outsourcing is becoming increasingly more important: the average share of revenue spent on such arrangements has gone up by 85 percent since 2006. We develop a methodology to transform reported expenses on temporary and leased workers into plant-level outsourced employment counts, using administrative data on the U.S. manufacturing sector. We find that domestic outsourcing is an important margin of adjustment that plants use to modify their workforce in response to productivity shocks. Plant-level outsourced employment adjusts more quickly and is twice as responsive as payroll employment. These micro implications have significant aggregate consequences. Without taking reallocations in outsourced employment into account, the measured pace at which jobs reallocate across workplaces is underestimated. On average, we omit the equivalent of 15 percent of payroll employment reallocations in each year. However, outsourced employment churns at a much higher rate compared to its payroll counterpart. Therefore, the omission of outsourced reallocations can rationalize 37 percent of the secular decline in the aggregate job reallocation rate. Lastly, the extent of mismeasurement varies with the business cycle; falling in downturns and increasing in upturns implying that the speed of economic recovery is underestimated.
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