In this paper, we provide evidence for higher returns to experience in big cities. We exploit a government policy of quasi-random settlement of political refugees in Denmark between 1986 and 1998, which generated plausibly exogenous variation in workers’ initial local labor market. Detailed matched employer-employee datasets allow us to track workers’ location and labor market experience, including their employers. We show that the slope of a refugee’s lifetime wage path depends strongly and positively on initial placement in the country’s capital, Copenhagen. Conditional on observables, settled refugees initially earn similar hourly wages across regions, but those placed in Copenhagen see their wages grow 0.81% faster than others with each year of experience they accumulate. We further show that this premium is driven by the greater acquisition of experience at high-wage establishments and by differential sorting across occupations. Estimating a spatial model of earnings dynamics reveals that sorting on unobserved ability within cities plays an important role in explaining observed patterns.
Growth, Demand and Deleveraging [new version coming soon] (with Brian Greaney)
We present evidence that weak household demand contributed to a reduction in both firm and product entry in the Great Recession. Motivated by this evidence, we characterize aggregate growth dynamics in response to demand shocks in a broad class of endogenous growth models. We show that the aggregate impacts of demand shocks are determined completely through their impact on current profits, and take a tractable form. Moving to general equilibrium, we couple this class with the classic incomplete markets model, and study quantitatively the response of growth to a severe deleveraging event. We find that a such an event can lead to a prolonged period of slower growth.
Works in Progress
A Structural Model of Declining Dynamism and Rising Markups (with Michael Peters)
Job Market Paper: Firm Growth Within and Across Cities