Job market paper

Should I Stay or Should I Grow? How Cities Affect Learning, Inequality and Productivity

Abstract: The spatial concentration of talent is a robust pattern of modern economies. While the sorting of individuals into cities beget regional disparities, it may benefit aggregate productivity by fostering human capital accumulation. To study this equity-efficiency tradeoff, I develop a tractable model of learning across space. Heterogeneous workers learn by interacting with the other individuals in their city. Learning opportunities vary across space as workers sort into cities. Cities affect the stock of human capital by determining the frequency at which workers meet. I show that the tradeoff between productivity and spatial inequality hinges upon the shape of learning complementarities. I estimate the model on French administrative data. I recover learning complementarities from a local projection of future wages on present wages and the wages of nearby individuals. I find that workers employed in relatively skill-dense cities experience faster wage growth, in particular if they are skilled. I address endogeneity concerns by using skill-density variations within firms across neighborhoods driven by past productivity shocks. The model explains two-thirds of the between-city wage growth variance, and gives rise to a steep tradeoff between aggregate human capital accumulation and spatial inequality. I assess the implications of this tradeoff for the general equilibrium effects of moving vouchers. I find that large vouchers are effective at reducing spatial disparities in learning opportunities at the cost of decreased aggregate efficiency.

Working papers

Outsourcing, Inequality and Aggregate Output
With A. Bilal. Revise & Resubmit, Journal of Political Economy.
Outsourced workers experience large wage declines, yet domestic outsourcing may raise aggregate productivity. To study this equity-efficiency trade-off, we contribute a framework in which multiworker firms either hire imperfectly substitutable worker types in-house along a wage ladder, or rent labor services from contractors who hire in the same frictional labor markets. Three implications arise. First, selection into outsourcing: more productive firms are more likely to outsource to save on labor costs and higher wage premia. Second, a productivity effect: outsourcing leads firms to raise output and labor demand. Third, an outsourcing wage penalty: contractor firms pay lower wages. We find support for all three implications in French administrative data and rule out alternative explanations. Instrumenting revenue productivity using export demand shocks, we find evidence for selection into outsourcing. Instrumenting outsourcing using variation in occupational exposure, we find evidence for the productivity effect. We confirm the outsourcing wage penalty with a movers design. After structurally estimating the model and validating it against our reduced-form estimates, we find that the rise in outsourcing in France between 1997 and 2016 lowers low skill service worker earnings and welfare by 1.5%. Outsourcing increases labor market sorting, lowers the share of rents going to workers, but raises aggregate output by 6%. A simultaneous 5.5% minimum wage hike stabilizes earnings and maintains employment and output gains.
The Local Root of Wage Inequality
I study the role of cities in shaping wage inequality. I document three novel facts that serve to motivate my analysis. First, high-paying jobs are much more spatially concentrated than low-paying jobs. Second, local search frictions generate city-specific job ladders, and the concentration of high-paying jobs in a few cities renders their ladders steeper. Third, high-paying jobs are concentrated in locations with larger firm-size wage premia. To rationalize these facts, I develop a framework of employer sorting across frictional local labor markets. Positive assortative matching prevails: productive jobs are located in larger cities, their higher willingness-to-pay leads to fiercer local competition, and productive employers offer high wages to attain their desired size. Altogether, firm sorting generates greater inequality in larger locations.

Publications

Supply Chain Resilience: Should Policy Promote International Diversification or Reshoring?
With G. Grossman and E. Helpman. 2023. Journal of Political Economy, 131:12, 3462-3496 .
Little is known about optimal policy in the face of potential supply chain disruptions. Should governments promote resilience by subsidizing backup sources of input supply or encourage firms to source from safer, domestic suppliers? We address these questions in a model of production with a single critical input and exogenous risks of relationship-specific and country-wide supply disturbances. In the CES case, a subsidy for diversification achieves the constrained social optimum. When the demand elasticity rises with price, private investments in resilience may be socially excessive and the social planner may wish to favor sourcing at home or abroad.