Runner-up Best Student Paper at the Urban Economics Association 2018. Also available as Minneapolis Fed OIGI WP 24
We offer causal evidence of an urban wage growth premium. We exploit a government policy of quasi-random settlement of political refugees across labor markets in Denmark between 1986 and 1998. Refugees initially earn similar hourly wages, but those placed in Copenhagen see their wages grow 30% faster with each additional year of experience. Differential sorting towards high-wage establishments, occupations, and industries explains a large part of this growth premium. An estimated spatial model of earnings dynamics attributes an important role to unobserved worker ability: more able refugees transition to more productive establishments faster in Copenhagen than in other cities.
We present evidence that weak household demand contributed to a reduction in firm 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. We then study quantitatively the response of growth to a severe deleveraging event in general equilibrium, by coupling this class with the classic incomplete markets setting for households. We find a persistent recession induced by deleveraging can significantly influence growth in productivity. In turn, the growth slowdown provides a novel source of propagation: households increase savings in response to future slow growth, exacerbating the fall in demand, and slowing the recovery.
Also available as Minneapolis Fed OIGI WP 25
We study a group of service industries that are skill-intensive, widely traded, and have recently seen explosive wage growth. Between 1980 and 2015, these “Skilled Tradable Services” accounted for a sharply increasing share of employment among the highest earning Americans. Unlike any other sector, their wage growth was strongly biased toward the densest local labor markets and the highest paying firms. These services alone explain 30% of the increase in inequality between the 50th and 90th percentiles of the wage distribution. We offer an explanation for these patterns that highlights the complementarity between the non-rivalry of knowledge and changes in communication costs.
Works in Progress
Declining Dynamism, Increasing Markups and Missing Growth: The Role of the Labor Force (with Michael Peters)
A growing body of empirical research highlights substantial changes in the US economy during the last three decades. Business dynamism – namely job reallocation, firm entry and creative destruction – is declining. Market power, as measured by markups and industry concentration, seems to be on the rise. Aggregate productivity growth is sluggish. We show that declines in the rate of growth of the labor force can qualitatively account for all of these features in a standard model of firm-dynamics. Despite its richness we can characterize the link between population growth and dynamism, markups and growth analytically. When we calibrate the model to the universe of U.S. Census data, the labor force channel can explain a large fraction of the aggregate trends.
Job Market Paper: Firm Creation and Local Growth