Structural Change and Internal Labor Migration: Evidence from the Great Depression

We analyze sectoral labor reallocation and the reversal of urbanization in the U.S. during the Great Depression. The widespread movement to farms, which serves as a form of migratory insurance during the crisis, is largely towards farms with low levels of mechanization. In contrast, the mechanized agricultural sector sheds workers, many of whom reallocate into low-productivity or subsistence farming. The crisis perverts the normal process of structural change—in which workers displaced by farm equipment are released into more productive occupations—suggesting that macroeconomic fluctuations are an important factor determining the labor market consequences of technological change.

Temperature, Labor Reallocation, and Industrial Production: Evidence from India

To what degree can labor reallocation mitigate the economic consequences of weather-driven agricultural productivity shocks? I estimate that temperature-driven reductions in the demand for agricultural labor in India are associated with increases in nonagricultural employment. This suggests that the ability of nonagricultural sectors to absorb workers may play a key role in attenuating the economic consequences of agricultural productivity shocks. Exploiting firm-level variation in the propensity to absorb workers, I estimate relative expansions in manufacturing output in more flexible labor markets. Estimates suggest that, in the absence of labor reallocation, local economic losses could be up to 69 percent higher. (JEL J23, J43, L60, O13, O14, Q54, Q56)

Dynamic Labor Reallocation with Heterogeneous Skills and Uninsured Idiosyncratic Risk

Occupational specificity of human capital motivates an important role of occupational reallocation for the economy's response to shocks and for the dynamics of inequality. We introduce occupational mobility, through a random choice model with dynamic value function optimization, into a multi-sector/multi-occupation Bewley-Aiyagari model with heterogeneous income risk, liquid and illiquid assets, price adjustment costs, and in which households differ by their occupation-specific skills. Labor income is a combination of endogenous occupational wages and idiosyncratic shock. Occupational reallocation and its impact on the economy depend on the transferability of workers' skills across occupations and occupational specialization of the production function. The model matches well the statistics on income and wealth inequality, and the patterns of occupational mobility. It provides a laboratory for studying the short- and long-run effects of occupational shocks, automation and task encroaching on income and wealth inequality. We apply the model to the pandemic recession by adding an SIR block with occupation-specific infection risk and a ZLB policy and study the impact of occupational and aggregate labor supply shocks. We find that occupational mobility may tame the effect of the shocks but amplifies earnings inequality, as compared to a model without mobility.

Globalization, Trade Imbalances and Labor Market Adjustment

We study the role of global trade imbalances in shaping the adjustment dynamics in response to trade shocks. We build and estimate a general equilibrium, multi-country, multi-sector model of trade with two key ingredients: (a) Consumption-saving decisions in each country commanded by representative households, leading to endogenous trade imbalances; (b) labor market frictions across and within sectors, leading to unemployment dynamics and sluggish transitions to shocks. We use the estimated model to study the behavior of labor markets in response to globalization shocks, including shocks to technology, trade costs, and inter-temporal preferences (savings gluts). We find that modeling trade imbalances changes both qualitatively and quantitatively the short- and long-run implications of globalization shocks for labor reallocation and unemployment dynamics. In a series of empirical applications, we study the labor market effects of shocks accrued to the global economy, their implications for the gains from trade, and we revisit the "China Shock" through the lens of our model. We show that the US enjoys a 2.2 percent gain in response to globalization shocks. These gains would have been 73 percent larger in the absence of the global savings glut, but they would have been 40 percent smaller in a balanced-trade world.

Misallocation in Open Economy

This paper estimates the impact of reducing export and import tariffs on firm input choices. In presence of borrowing constraints, lower export tariffs facilitate the reallocation of capital and labor inputs across firms, while a decline in import tariffs either tightens import competition or increases the availability of imported inputs; all three mechanisms suggest that a higher degree of openness should be associated with lower misallocation. To analyze the empirical relationship between openness and input misallocation, we draw on the annual surveys conducted by the Chinese National Bureau of Statistics (NBS) between 1998 and 2007. From the surveys, we con- struct firm-level measures of input misallocation that control for firm heterogeneity; we identify shocks to openness using industry tariff levels and firm trade shares. We find that firm facing higher tariffs in either import or export markets make less optimal input choices. We further decompose our analysis between input and output tariffs: our results suggest that the labor reallocation mainly occurs because of lower input tariffs, while the selection effect induced by changes in output tariffs does not necessarily cause more distorted firms to exit and, therefore, tends to have an insignificant effect on input allocation. Finally, we calculate the contribution of tariff changes towards aggregate misallocation and productivity: our results indicate that the impact of firm-level tariff reductions on aggregate misallocation and productivity was marginal in our sample period, but the presence of sizeable interactions between trade shocks and mis- allocation at the sector level suggests that our result should be interpreted as a lower bound of the overall effect.

Wettbewerbliche Banken fördern das Wachstum

ZusammenfassungWas nützen die besten Ideen, wenn Investitionen und neue Jobs mangels Zugang zu Bankkrediten nicht zustande kommen? Wachstum und Innovation brauchen einen leistungsfähigen Finanzsektor. Wettbewerb regt auch die Banken zu Höchstleistungen an. Indem sie mehr Informationen über ihre Kunden sammeln und ihre Prozesse bei der Auswahl und anschliessenden Überwachung optimieren, gelingt es ihnen besser, die besonders vielversprechenden Unternehmen zu identifizieren. Dadurch, dass die Banken die Kreditvergabe vor allem auf die innovativen und profitablen Unternehmen mit hohem Wachstumspotential lenken, fördern sie die Produktivitätssteigerungen und das Wachstum der Realwirtschaft.Bai, J., D. Carvalho, und G. M. Phillips (2018), The Impact of Bank Credit on Labor Reallocation and Aggregate Industry Productivity, Journal of Finance 63(6), 2787–2836.