Sergio Ocampo

Recent Research Papers

[New Draft] Self-employment and development [Submitted]

]With Juan Herreño

Selection into self-employment among the poor is dominated by subsistence concerns, which leads to high levels of unproductive self-employment in developing countries. We incorporate this view into an otherwise benchmark macro-development model by allowing for labor frictions. Standard models that rely only on financial frictions are at odds with crucial features of the data, including large self-employment rates among the poor and the response of labor markets after well-identified labor demand shocks. We study the efficacy of a wide range of development policies on occupational choices, prices, and productivity. Providing unemployment benefits improves selection into self-employment, increasing TFP. Unconditional transfers or grants conditional on self-employment lower TFP by making self-employment more attractive to low-productivity individuals. Finally, financial reforms that improve access to credit succeed in raising productivity but do not address the subsistence concerns of poor agents. Self-employment is still concentrated among the poor after the reforms take place.

Extra: Previous version with additional productivity shifters (Draft, 2019)

[New Draft] The evolution of U.S. retail concentration [Submitted]

With Dominic Smith (BLS Working Paper 526)

Increases in concentration have been a salient feature of industry dynamics during the past 30 years. This trend is particularly notable in the U.S. retail sector, where large national firms have displaced small local firms. Existing work focuses on national trends, yet less is known about the dynamics of concentration in local markets and the relationship between local and national trends. We address these issues by providing a novel decomposition of the national Herfindahl-Hirschman Index into a local and a cross-market component. We measure concentration using new data on product-level revenue for all U.S. retail stores and find that despite local concentration increasing by 34 percent between 1992 and 2012, the cross-market component explains 99 percent of the rise in national concentration, reflecting the expansion of multi-market firms. We estimate an oligopoly model of retail competition and find that the increase in markups implied by rising local concentration had a modest effect on retail prices.

Key Equation: National HHI = 0.02xLocal HHI + 0.98xCross-Market HHI

• • • National concentration measures do not respond to local changes.

    • Instead, national HHI depends on cross-market HHI (people in different markets shopping at the same firms)

Use it or lose it: Efficiency gains from wealth taxation [Under Revision for the Quarterly Journal of Economics]

With Fatih Guvenen, Gueorgui Kambourov, Burhan Kuruscu and Daphne Chen (NBER working paper version)

This paper studies the quantitative implications of wealth taxation (tax on the stock of wealth) as opposed to capital income taxation (tax on the income flow from capital) in an overlapping-generations incomplete-markets model with rate of return heterogeneity across individuals. With such heterogeneity, capital income and wealth taxes have opposite implications for efficiency and some key distributional outcomes. Under capital income taxation, entrepreneurs who are more productive, and therefore generate more income, pay higher taxes. Under wealth taxation, on the other hand, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the base and shifts the tax burden toward unproductive entrepreneurs. This reallocation increases aggregate productivity and output. In the simulated model calibrated to the U.S. data, a revenue-neutral tax reform that replaces capital income tax with a wealth tax raises welfare by about 8% in consumption-equivalent terms. Moving on to optimal taxation, the optimal wealth tax is positive, yields even larger welfare gains than the tax reform, and is preferable to optimal capital income taxes. Interestingly, optimal wealth taxes result in more even consumption and leisure distributions (despite the wealth distribution becoming more dispersed), which is the opposite of what optimal capital income taxes imply. Consequently, wealth taxes can yield both efficiency and distributional gains.

Coverage: Financial Times (Free Lunch, Article), The Economist (Article), Bloomberg (Noah Smith: 2016, 2019), St. Louis Fed (interview with Fatih Guvenen), Observatorio Fiscal (Online OpEd, in Spanish)

A task-based theory of occupations (Job Market Paper)

I develop an assignment model of occupations with multidimensional heterogeneity in production tasks and worker skills. Tasks are distributed continuously in the skill space, whereas workers have a discrete distribution with a finite number of types. Occupations arise as a bundle of tasks optimally assigned to a type of worker. The model allows us to study how occupations evolve—e.g., changes in their boundaries, wages, and employment—in response to changes in the economic environment, making it useful for analyzing the implications of automation, skill-biased technical change, offshoring, and skill upgrading by workers, among others. I characterize how the wages and marginal product of workers, the substitutability between worker types, and the labor share depend on the assignment. In particular, I show that these properties depend on the productivity of workers in tasks along the boundaries of their occupations. As an application, I study the rise in automation observed in recent decades. Automation is modeled as a choice of the optimal size and location of a mass of identical robots in the task space. The firm trades off the cost of the robots, which varies across the space, against the benefit of reducing the mismatch between tasks’ skill requirements and workers’ skills. The model rationalizes observed trends in automation and delivers implications for changes in wage inequality, unemployment, and the labor share.