This paper analyzes the contribution of import competition to the divergence among US metropolitan areas over recent decades. I document that the sharp rise of imports of Chinese manufacturing goods had a significant effect on the spatial skill polarization and the divergence of wages and skill premium among American cities. The effects of the China shock on skill sorting and returns to skills were systematically different depending on the skill intensity of local services. Among highly educated cities, a higher exposure to import competition increases the college-educated workforce and the wages for skilled workers. The negative effects of the China shock concentrated in exposed regions with a low density of college-educated workers. The heterogeneous effects of import competition explain one third and one fourth of the variation of the spatial skill polarization and the divergence of skill premium, respectively. I show that the contribution of the trade shock operates through the reallocation of workers across sectors and cities. Using a novel measure of ‘labor market’ exposure to the China shock, I document that service industries expand when their local manufacturing sector faces import competition. High human capital regions exposed to the China shock undergo a faster transition from manufacturing to skill-intensive service industries.
Measuring TFP Growth: The Role of Profits, Adjustment Costs, and Capacity Utilization (with D. Comin, T. Schmitz and A. Trigari) [NBER WP 28008]
Standard methods for estimating total factor productivity (TFP) growth assume that economic profits are zero and adjustment costs are negligible. Moreover, following the seminal contribution of Basu, Fernald and Kimball (2006), they use changes in hours per worker as a proxy for unobserved changes in capacity utilization. In this paper, we relax the assumptions on profits and adjustment costs and introduce a new utilization proxy, based on firm surveys. Using our method, we estimate industry-level and aggregate TFP growth rates for the United States and five European countries, for the period 1995-2016. In the United States, our results suggest that the recent slowdown of TFP growth was more gradual than previously thought. In Europe, our TFP series are substantially less volatile and less cyclical than the ones obtained with standard methods. For the United States, differences are due to profits, while for Europe, they are due both to profits and to our new utilization proxy.
Propagation of sector-specific shocks within Spain and other countries (with M. Izquierdo, E. Moral-Benito and E. Prades)
We explore the propagation of sector-specific shocks through the Spanish input-output network. First, we outline a theoretical framework borrowed from the networks literature that allows us to distinguish between downstream (from suppliers to customers) and upstream (from customers to suppliers) propagation depending on the nature of the shocks being considered, either supply- or demand-driven. Second, we compute industry-specific domestic multipliers and compare the propagation features of the Spanish production network with those of other countries using the National Input-Output Tables (NIOTs) for the year 2014. We provide a novel analysis of the effects of contemporaneous supply shocks affecting the same industry in different countries. We find that in that case, the effect on domestic GDP of supply shocks to some manufacturing industries increases significantly. We also find that the introduction of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) in the second half of 2018 and its propagation through input-output linkages might have had a larger aggregate impact in Germany than in Spain.
Local Price Index for Spanish Urban Areas (with V. Forte and E. Moral-Benito) [on request]