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on Labor Markets - Supply, Demand, and Wages |
| By: | Terry Gregory; Ulrich Zierahn |
| Abstract: | We investigate minimum wage spillovers by exploiting the first-time introduction of a minimum wage within a quasi-experiment in a context with an extraordinary large bite: the German roofing industry. We find positive wage spillovers for medium-skilled workers with wages just above the minimum wage, but negative effects for high-skilled top earners in East Germany, where the bite was particularly pronounced. There, the minimum wage lowered both returns to skills and skill supply. We propose a theoretical model according to which negative spillovers occur whenever a negative scale effect dominates a positive substitution effect and provide empirical support for our theory. |
| Keywords: | minimum wages, wage effects, spillover effects, wage restraints, returns to skills, unconditional quantile regression, scale effect, substitution effect, skill supply |
| JEL: | J31 J38 J24 C21 J23 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8540&r=all |
| By: | Hlouskova, Jaroslava (Institute for Advanced Studies (IHS), Vienna, International Institute for Applied Systems Analysis (IIASA), Laxenburg, Austria, and Faculty of National Economy, University of Economics in Bratislava, Slovakia); Tsigaris, Panagiotis (Department of Economics, Thompson Rivers University, Kamloops,BC, Canada) |
| Abstract: | Financial constraints or economic needs, career development, psychological satisfaction as well as demographic and situational factors cause workers to seek more than one job while enjoying leisure time. In this paper we examine how a worker with prospect theory type of preferences allocates her time between leisure, a safe job and a risky job. Optimal time allocation for a sufficient loss averse worker depends on the reference level which in turn determines whether the worker is willing to experience relative losses or not. When the reference level is relatively low then the sufficiently loss averse worker will allocate some of her time to leisure and will hold both jobs in order to diversify risk and reduce income loss arising from the risky job. However, if the probability of a good state of nature is very high and the reference level is very low, the worker spends time only on leisure and the risky job while avoids the safe job. Loss aversion does not affect the optimal time allocation to the three activities as the time allocation results in avoiding relative losses for any state of nature. When the reference level is relative high, but not too high, the worker will allocate her time between both safe and risky jobs as well as to the leisure. Worker with very high reference level will avoid the safe job and will divide her time between the risky job and the leisure. In both cases the worker is willing to accept relative losses in the bad state of nature provided it is compensated with relative gains in the good state of nature. Here the allocation of time to the three activities depends on the degree of loss aversion. When the reference level is relatively low, but not too low, an increase in the reference level will reduce leisure time, reduce time in the risky job and increase time in the safe job. At very low reference levels, an increase in the reference level will result in the worker re-allocating her time from leisure to the risky job assuming the probability of a good state of nature is higher than a threshold. When the reference level is high the opposite effects are observed. We also examine other comparative statics including the effect of changes in the wage rate. |
| Keywords: | multiple job holdings, prospect theory, loss aversion |
| JEL: | D81 G11 E24 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:ihs:ihswps:23&r=all |
| By: | James P. Ziliak; Charles Hokayem; Christopher R. Bollinger |
| Abstract: | We document trends in earnings volatility separately by gender in combination with other characteristics such as race, educational attainment, and employment status using unique linked survey and administrative data for the tax years spanning 1995-2015. We also decompose the variance of trend volatility into within- and between-group contributions, as well as transitory and permanent shocks. Our results for continuously working men suggest that trend earnings volatility was stable over our period in both survey and tax data, though with a substantial countercyclical business-cycle component. Trend earnings volatility among women declined over the period in both survey and administrative data, but unlike for men, there was no change over the Great Recession. The variance decompositions indicate that nonresponders, low-educated, racial minorities, and part-year workers have the greatest group specific earnings volatility, but with the exception of part-year workers, they contribute least to the level and trend of volatility owing to their small share of the population. There is evidence of stable transitory volatility, but rising permanent volatility over the past two decades in male and female earnings. |
| Keywords: | CPS ASEC, earnings volatility, nonresponse, administrative tax data |
| JEL: | J31 C8 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:20-24&r=all |
| By: | Adams-Prassl, Abigail (University of Oxford); Balgova, Maria (IZA); Qian, Matthias (University of Oxford) |
| Abstract: | In this paper, we analyze firm demand for flexible jobs by exploiting the language used to describe work arrangements in job vacancies. We take a supervised machine learning approach to classify the work arrangements described in more than 46 million UK job vacancies. We highlight the existence of very different types of flexibility amongst low and high wage vacancies. Job flexibility at low wages is more likely to be offered alongside a wage-contract that exposes workers to earnings risk, while flexibility at higher wages and in more skilled occupations is more likely to be offered alongside a fixed salary that shields workers from earnings variation. We show that firm demand for flexible work arrangements is partly driven by a desire to reduce labor costs; we find that a large and unexpected change to the minimum wage led to a 7 percentage point increase in the proportion of flexible and non-salaried vacancies at low wages. |
| Keywords: | flexible jobs, minimum wage, labor demand |
| JEL: | J23 J31 J80 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13691&r=all |
| By: | Bailey, Keith A. (U.S. Census Bureau); Spletzer, James R. (U.S. Census Bureau) |
| Abstract: | We create a measure of multiple jobholding from the U.S. Census Bureau's Longitudinal Employer-Household Dynamics data. This new series shows that 7.8 percent of persons in the U.S. are multiple jobholders, this percentage is pro-cyclical, and has been trending upward during the past twenty years. The data also show that earnings from secondary jobs are, on average, 27.8 percent of a multiple jobholder's total quarterly earnings. Multiple jobholding occurs at all levels of earnings, with both higher- and lower-earnings multiple jobholders earning more than 25 percent of their total earnings from multiple jobs. These new statistics tell us that multiple jobholding is more important in the U.S. economy than we knew. |
| Keywords: | multiple jobholding, earnings, LEHD |
| JEL: | J2 J3 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13693&r=all |
| By: | Kevin M. Kniffin; Andrew S. Hanks; Xuechao Qian; Bo Wang; Bruce A. Weinberg |
| Abstract: | Institutional leaders have long championed interdisciplinary research; however, researchers have paid relatively little attention to the people responding to such calls and their subsequent career outcomes. With the benefit of two large datasets spanning from 1986 through 2016, we show that interdisciplinary dissertations have become consistently more common in recent years as institutional leaders have highlighted the value of boundary-spanning research for solving important and emergent problems. With the benefit of survey data from a near-complete population of all dissertators in the US starting in 2001 through 2016, we observe a consistent upward trend in interdisciplinary dissertations. Unfortunately, we show that these interdisciplinary dissertators have experienced a comparably persistent penalty when considering salaries for their first year after earning the PhD. We also show that among interdisciplinary dissertators, individuals in lower-paying fields tend to earn more when choosing distantly related topic-combinations whereas researchers in higher-paying fields tend to be most rewarded for staying within relatively narrow disciplinary silos. |
| JEL: | I23 J24 O3 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27825&r=all |
| By: | Kuan-Ming Chen; Claire Ding; John A. List; Magne Mogstad |
| Abstract: | Recent changes in labor arrangements have increased interest in estimating and understanding the value of job flexibility. We leverage a large natural field experiment at Uber to create exogenous variation in expected market wages across individuals and over time. Combining this experiment with high frequency panel data on wages and individual work decisions, we document how labor supply responds to exogenous changes in expected market wages in a setting with virtually no restrictions on driver labor allocation. We find that there is i) systematic heterogeneity in labor supply responses both across drivers and within a driver over time, ii) significant fixed costs of beginning a shift, and iii) high rider demand when it is costly for drivers to work. These three findings motivate a model of labor supply with heterogenous preferences over work schedules, adjustment costs, and statistical dependence between market wages and the costs of driving. We recover the labor supply elasticities and reservation wages of this dynamic labor supply model via a combination of experimental estimates and other data moments. We then perform counterfactual analyses that allow us to examine how preference heterogeneity and adjustment costs influence the responses of workers' to wage incentives as well as infer drivers' willingness to pay for the ability to customize and adjust their work schedule. We also show that a static approach to the driver's dynamic problem delivers materially different estimates of workers' labor supply elasticities and their value of job flexibility. |
| JEL: | C93 J2 J3 J4 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27807&r=all |
| By: | Laura Ehrmantraut (University of Bonn); Pia Pinger (University of Cologne and briq); Renske Stans (Erasmus University) |
| Abstract: | This paper explores students' expectations about the returns to completing higher education and provides first evidence on perceived signaling and human capital effects. We conducted a survey among a large and diverse sample of students at different stages of higher education to elicit counterfactual labor market expectations for the hypothetical scenarios of leaving university with or without a degree certificate. Our findings indicate substantial perceived returns to higher education. Moreover, using within-individual fixed effects models, we document substantial expected labor market returns from signaling, whereas perceived productivity-enhancing (human capital) returns seem to be less pronounced. Over the expected course of career, we find lasting education premia as well as evidence consistent with employer learning. |
| Keywords: | higher education, returns to education, signaling, educational attainment, licensing |
| JEL: | I21 I23 I26 J24 J31 J44 J32 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2020-070&r=all |
| By: | Roman Horvath (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic); Ali Elminejad (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic); Tomas Havranek (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic) |
| Abstract: | A key parameter in structural models is the Frisch elasticity of labor supply at the extensive margin, but empirical estimates vary greatly. We provide a quantitative synthesis of the literature. To this end, we collect 723 estimates from 36 studies along with 22 explanatory variables reflecting studies’ characteristics and address model uncertainty by Bayesian and frequentist model averaging. Using linear and non-linear techniques, we find that publication bias exaggerates the mean of reported elasticities in the literature from 0.25 to 0.49. Our findings also suggest that two principal characteristics affect the magnitude of estimated elasticities systematically. First, identification bias: studies that follow a quasi-experimental approach tend to report smaller estimates. Second, aggregation bias: studies using macro data tend to report larger estimates. Furthermore, estimates associated with prime age or male workers tend to be systematically smaller, while studies relying on specific-industry data, near retirement workers, and probit regression tend to be larger. |
| Keywords: | Frisch elasticity, extensive margin, meta-analysis, publication bias, Bayesian model averaging |
| JEL: | E24 J20 J21 C83 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2020_32&r=all |
| By: | Leaver, Clare (University of Oxford); Ozier, Owen (Williams College); Serneels, Pieter (University of East Anglia); Zeitlin, Andrew (Georgetown University) |
| Abstract: | This paper reports on a two-tiered experiment designed to separately identify the selection and effort margins of pay-for-performance (P4P). At the recruitment stage, teacher labor markets were randomly assigned to a pay- for-percentile or fixed-wage contract. Once recruits were placed, an unexpected, incentive-compatible, school-level re-randomization was performed, so that some teachers who applied for a fixed-wage contract ended up being paid by P4P, and vice versa. By the second year of the study, the within-year effort effect of P4P was 0.16 standard deviations of pupil learning, with the total effect rising to 0.20 standard deviations after allowing for selection. |
| Keywords: | pay-for-performance, selection, incentives, teachers, field experiment |
| JEL: | C93 I21 J45 M52 O15 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13696&r=all |
| By: | Elizabeth M. Caucutt; Lance Lochner; Joseph Mullins; Youngmin Park |
| Abstract: | This paper studies the multidimensional nature of investments in children within a dynamic framework. In particular, we examine the roles of parental time investments, purchased home goods/services inputs, and market-based child care services. We first document strong increases in total investment expenditures by maternal education; yet expenditure shares, which skew heavily towards parental time, vary little with parental schooling. Second, we develop an intergenerational lifecycle model with multiple child investment inputs to study these patterns and the impacts of policies that alter the prices of different inputs. We analytically characterize investment behavior, focusing on the substitutability of different investment inputs and the way parental skills affect the productivity of family-based inputs. Third, we develop an estimation strategy that exploits intratemporal optimality conditions based on relative demand to estimate substitutability between inputs, the relative productivity of different inputs, and the role played by parental education. This approach requires no assumptions about the dynamics of skill investment, preferences, or credit markets. We also account for mismeasured inputs and wages, as well as unobserved heterogeneity in parenting skills. We further show how noisy measures of child achievement (measured several years apart) can also be incorporated in a generalized method of moments approach to additionally identify the dynamics of skill accumulation. Fourth, we use data from the Child Development Supplement of the Panel Study of Income Dynamics to estimate the skill production technology for children ages 12 and younger. Our estimates suggest complementarity between parental time and home goods/services inputs as well as between these family-based inputs and market-based child care, with elasticities of substitution ranging from 0.2 to 0.5. We find no systematic effects of parental education on the relative productivity of parental time and other home inputs. Finally, we use counterfactual simulations to explore the extent and sources of variation in investments across families, as well as investment responses to changes in input prices. We find that variation in prices explains 48% of the overall variance in investment expenditures, and differences in wages explain more than half of the investment expenditure gap between college-educated and non-college-educated parents. We further show that accounting for the degree of input complementarity implied by our estimates has important implications for the responses of individual inputs to any price change and for the responses in total investments and skill accumulation to large (but not small) price changes. |
| JEL: | D13 I24 J13 J22 J24 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27838&r=all |
| By: | James Lennox |
| Abstract: | Experiences of and investments in working from home (WFH) during the COVID-19 pandemic may permanently alter commuting behaviour and employment practices, ultimately changing the shape and size of cities. Using a spatial computable general equilibrium (SCGE) model, we study the effects of a shift to working-from home on labour supply, housing demands and the sectoral and spatial structure of the Australian economy. The model accounts for households' choices of occupations, residence and work locations, and for trade and input-output linkages between firms in different locations and industries. Simulating increased WFH in selected occupations causes labour supply to shift towards these occupations at the expense of others. This is particularly favourable for many business services industries, which use the WFH occupations most intensively. Within cities, workers choosing WFH occupations opt for longer, but less frequent commutes from residential locations that are more attractive or have cheaper housing. Although this depresses house prices in inner areas, attracting workers choosing non-WFH occupations and non-working households, the net effects are flatter residential density gradients and increased urban sprawl. Jobs, become more centralised within cities and increase overall in the largest and most productive cities. Smaller cities and towns close to large employment centres attract more residents who commute out, but the majority of Australian cities and towns shrink, relative to the baseline. |
| Keywords: | commuting working from home telecommuting SCGE model COVID-19 |
| JEL: | C68 R12 R13 R41 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cop:wpaper:g-306&r=all |
| By: | Elizabeth Ananat (Barnard College, Columbia University); Shihe Fu (Southwest University of Finance and Economics); Stephen L. Ross (University of Connecticut) |
| Abstract: | Racial social isolation within workplaces may reduce firm productivity. We provide descriptive evidence that African-Americans feel socially isolated from whites. To test whether isolation affects productivity, we estimate models of Total Factor Productivity for manufacturing firms allowing the returns to concentrated economic activity and human capital to vary by the match between each establishment’s racial and ethnic composition and the composition of local area employment. Higher own-race representation increases the productivity return from employment density and concentrations of college educated workers. Looming demographic changes suggest that this drag on economic productivity may increase over time. |
| Keywords: | agglomeration economies, firm productivity, human capital externalities, information networks, racial and ethnic isolation |
| JEL: | J15 J24 L11 R32 R12 R23 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2020-069&r=all |
| By: | Lukas Mergele; Moritz Hennicke; Moritz Lubczyk |
| Abstract: | The end of communism in the 1990s probably is the most fundamental restructuring of institutions witnessed in recent history. At its core was the large-scale redistribution of previously state-owned companies. We construct a unique firm-level dataset to study this redistribution in East Germany where the entire state-owned economy was either privatized or liquidated within less than five years. We examine whether the privatization authority followed its mandate to privatize competitive firms using initial labor productivity to indicate firms’ competitiveness. Our results highlight that firms with higher baseline productivity are more likely to be privatized, yield higher sales prices, are more often acquired by West German investors, and are more likely to remain in business even 20 years after leaving public ownership. The privatization agency plausibly contributed to these outcomes by rating and prioritizing productive firms |
| Keywords: | Privatization; labor productivity; German reunification |
| JEL: | D24 G38 H11 L33 P31 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/312650&r=all |
| By: | Sujeong Park; David Powell |
| Abstract: | There is considerable interest in understanding the broader effects of the opioid crisis on labor supply and social insurance programs in the United States. This paper examines how the recent transition of the opioid crisis from prescription opioids to more prevalent misuse of illicit opioids, such as heroin and fentanyl, altered labor supply behavior and disability insurance claiming rates. We exploit differential geographic exposure to the reformulation of OxyContin, the largest reduction in access to abusable prescription opioids to date, to study the effects of substitution to illicit markets. We observe meaningful reductions in labor supply measured in terms of employment-to-population ratios, hours worked, and earnings. We also find significant increases in disability applications and beneficiaries. These labor supply and disability insurance shifts begin immediately after reformulation and are uniquely associated with pre-reformulation rates of OxyContin misuse, not rates of broader pain reliever misuse. |
| JEL: | J22 H55 I12 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27804&r=all |
| By: | Stanislav Avdeev (National Research University Higher School of Economics) |
| Abstract: | Although many papers estimate returns to education, little causal evidence has been found for low- and middle-income countries. This paper estimates the causal effect of one year of university education on wages and employment in Russia. In 2011, the Bologna reform shortened the university study period by one year and reduced the content of the curricula but did not change the quality of admitted students. I exploit this reform as a natural experiment and use a difference-in-differences design. I find no adverse effect of a one-year reduction on wages and on the probability of being employed. This suggests that the reform lowered the opportunity costs of education but did not affect the accumulation of specific skills relevant for the labour market. |
| Keywords: | difference-in-differences, returns to education, human capital, higher education, employment, wages, Bologna reform, Russia |
| JEL: | I23 I26 J24 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:236/ec/2020&r=all |
| By: | Patrick J. Kehoe; Pierlauro Lopez; Virgiliu Midrigan; Elena Pastorino |
| Abstract: | Although a credit tightening is commonly recognized as a key determinant of the Great Recession, to date, it is unclear whether a worsening of credit conditions faced by households or by firms was most responsible for the downturn. Some studies have suggested that the household-side credit channel is quantitatively the most important one. Many others contend that the firm-side channel played a crucial role. We propose a model in which both channels are present and explicitly formalized. Our analysis indicates that the household-side credit channel is quantitatively more relevant than the firm-side credit channel. We then evaluate the relative benefits of a fixed-sized transfer to households and to firms that improves each group’s access to credit. We find that the effects of such a transfer on employment are substantially larger when the transfer targets households rather than firms. Hence, we provide theoretical and quantitative support to the view that the employment decline during the Great Recession would have been less severe if instead of focusing on easing firms’ access to credit, the government had expended an equal amount of resources to alleviate households’ credit constraints. |
| Keywords: | credit constraints; collateral constraints; Great Recession; financial recession; government transfers |
| JEL: | E3 E32 E62 J2 J6 |
| Date: | 2020–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:88790&r=all |
| By: | Merfeld, Joshua D. (KDI School of Public Policy and Management) |
| Abstract: | Market completeness has important implications for household behavior. I firmly reject complete markets for smallholders but am unable to do so for non-smallholders. This leads to important differences in production behavior: smallholders reallocate labor across activities less in response to intra-seasonal crop price changes than do non-smallholders. A counterfactual exercise indicates smallholders could increase revenue by almost nine percent if they were to reallocate labor similarly to non-smallholders. The overall pattern of results is consistent with small-holders lacking sufficient wage employment opportunities. Since non-smallholders have to hire in for agricultural production, this lack of opportunities does not affect their decisions. |
| Keywords: | markets, market failures, agriculture, labor |
| JEL: | J20 J43 O13 Q12 Q13 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13682&r=all |
| By: | Katherine Stapleton; Michael Webb |
| Abstract: | We use a rich dataset of Spanish manufacturing firms from 1990 to 2016 to shed new light on how automation in a high-income country affects trade and multinational activity involving lower-income countries. We exploit supply-side improvements in the capabilities of robots over time, as described in patents, that made it technically feasible to automate some specific tasks. We show that, contrary to the speculation that automation will cause reshoring, the use of robots in Spanish firms actually had a positive impact on their imports from, and number of affiliates in, lower-income countries. Robot adoption causes firms to expand production, increase productivity and makes them more likely to start importing from, or opening affiliates in, lower-income countries. The sequencing of automation and offshoring has important consequences for the impact of automation, however. For firms that had not already offshored to lower-income countries, robot adoption made them more likely to start doing so. By contrast, for firms that were already offshoring to lower-income countries, robot adoption had no effect on their value of imports from lower-income countries, but decreased their share of imports sourced from lower-income countries. We show that these findings can be explained in a framework that incorporates firm heterogeneity, the choice between automation, offshoring and performing tasks at home and where automation and offshoring both involve upfront fixed costs, such that their sequencing matters. |
| Keywords: | Automation; Robotics; Technology; Offshoring; Trade; Multinationals; Global supply chains; Heterogeneous firms; Labour share; Productivity |
| JEL: | F12 F16 J23 J24 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:2020-16&r=all |
| By: | Oriol Aspachs; Ruben Durante; Alberto Graziano; Josep Mestres; José García-Montalvo; Marta Reynal-Querol |
| Abstract: | Most official economic statistics have a relatively low frequency. The measures of inequality, in particular, are not only produced with low frequency but also with significant lags. This poses an important challenge for policymakers in their objective to mitigate the effects of a rapidly moving epidemic as the COVID-19. We propose a methodology for tracking the evolution of income inequality in the aftermath of the COVID-19 pandemic using high-frequency, high-quality microdata from bank-records. Using this approach we study the evolution of inequality since the beginning of the COVID-19 pandemic, and its effect on different groups of the population. First, we show that the payroll data managed by banks are an extremely useful source of information to detect, timely and accurately, changes in the distribution of wages. Our data replicate very closely the distribution of wages from the official wage surveys. Second, we show that, in absence of public benefits schemes, inequality would have increased dramatically. The impact of the crisis on inequality is explained mostly by its effect on low-wage workers. Pre-benefits wage inequality has increased significantly among foreign-born individuals, and regions that have a heavy economic dependence on touristic activities. Finally, we show that the public benefits activated soon after the beginning of the pandemic have substantially mitigated the impact of the COVID-19 crisis on inequality. |
| JEL: | C81 D63 E24 J31 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1202&r=all |
| By: | Stephen J. Redding |
| Abstract: | This paper reviews recent research on geography and trade. One of the key empirical findings over the last decade has been the role of geography in shaping the distributional consequences of trade. One of the major theoretical advances has been the development of quantitative spatial models that incorporate both exogenous first-nature geography (natural endowments) and endogenous second-nature geography (the location choices of economic agents relative to one another) as determinants of the distribution of economic activity across space. These models are sufficiently rich to capture first-order features of the data, such as gravity equations for flows of goods and people. Yet they remain sufficiently tractable as to permit an analytical characterization of the properties of the general equilibrium and facilitate counterfactuals for realistic policy interventions. We distinguish between models of regions or systems of cities (where goods trade and migration take center stage) and models of the internal structure of cities (where commuting becomes relevant). We review some of key empirical predictions of both sets of theories and show that they have been remarkably successful in rationalizing the empirical findings from reduced-form research. Looking ahead, the combination of recent theoretical advances and novel geo-coded data on economic interactions at a fine spatial scale promises many interesting avenues for further research, including discriminating between alternative mechanisms for agglomeration, understanding the implications of new technologies for the organization of work, and assessing the causes, consequences and potential policy implications of spatial sorting. |
| JEL: | F1 J4 R1 R4 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27821&r=all |