Academic Publications

Market Size Matters (with Hugo Hopenhayn). Forthcoming in Journal of Industrial Economics.

This paper characterizes the effects of market size on the size distribution of establishments for thirteen retail trade industries across 225 U.S. cities. In most industries we examine, establishments are larger in larger cities. Models of large-group competition in which markups fall after adding competitors can reproduce this observation.
JEL Classification: L11, L16, L81

Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U.S.-Canada Border (with Beverly Lapham). American Economic Review, 94(4), 1194-1206. September 2004.

Consumers living near the U.S.-Canada border can shift their expenditures between the two countries, so real exchange rate fluctuations can act as demand shocks to border areas' retail trade industries. Using county-level data, we estimate the effects of real exchange rates on the number of establishments and their average payroll in border counties for four retail industries. In three of the four industries we consider, the number of operating establishments responds either contemporaneously or with a lag of one year to real exchange rate movements. For these industries, the response of retailers' average size is less pronounced. The rapid response of net entry is inconsistent with models of real exchange rates that emphasize retailers' costs of changing nominal prices.
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Idiosyncratic Risk and Aggregate Employment Dynamics (with Jonas D.M. Fisher). Review of Economic Dynamics, 7(2), 331-353. April 2004.

This paper studies how idiosyncratic productivity risk impacts aggregate employment dynamics when there is a trade-off between workers' productivity and costs of job creation and destruction. In our analysis, increasing idiosyncratic risk induces a producer to move workers out of structured jobs that are costly to create and destroy and towards less-productive but more-flexible unstructured positions. This substitution leaves the producer's total employment more responsive to both idiosyncratic and aggregate disturbances. If all of an industry's producers respond to heightened idiosyncratic risk in this way, then industry-wide employment can respond more to a given aggregate shock. We apply this insight to connect differences between young and old manufacturing plants' aggregate employment dynamics with their corresponding differences in idiosyncratic variability.
JEL Classification: E00, L00, J00
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Aggregate Employment Fluctuations with Microeconomic Asymmetries (with Jonas D.M. Fisher). American Economic Review, 90(5) 1323-1345. December 2000.

We provide a simple explanation for the observation from the U.S. manufacturing sector that the job destruction rate fluctuates more than the job creation rate. In our model, proportional plant-level costs of creating and destroying jobs cause shrinking plants to be more sensitive to aggregate shocks than growing plants. We describe circumstances in which this microeconomic asymmetry is preserved in the aggregate and show that it can account for much of the observed asymmetries in gross job flows. This is so even though we abstract from job matching frictions, incomplete contracts, and aggregate congestion effects.
JEL Classification: E00, L00, J00
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Entry, Exit, Embodied Technology, and Business Cycles. Review of Economic Dynamics, 1(2), 371-408. April 1998.

This paper studies the entry and exit of U.S. manufacturing plants over the business cycle and compares the results with those from a vintage capital model augmented to reproduce observed features of the plant life cycle. Looking at the entry and exit of plants provides new evidence supporting the hypothesis that shocks to embodied technological change are a significant source of economic fluctuations. In the U.S. economy, the entry rate covaries positively with output and total factor productivity growth, and the exit rate leads all three of these. A vintage capital model in which all technological progress is embodied in new plants reproduces these patterns. In the model economy, a persistent improvement to embodied technology induces obsolete plants to cease production, causing exit to rise. Later, as entering plants embodying the new technology become operational, both output and productivity increase.
JEL Classification: L16, E22.
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Macroeconomic Effects of Employment Reallocation (with Kenneth N. Kuttner). Carnegie-Rochester Conference Series on Public Policy, 44 87-116. June 1996.

Major shifts in employment between industries and between firms within industries usually accompany recessions. Although this observation suggests that exogenous changes in the optimal allocation of labor are an important source of aggregate employment fluctuations, the macroeconomic significance of such shocks has remained unknown. This paper empirically assesses the role of reallocation shocks for cyclical employment fluctuations, and investigates the relationship between inter- and intrasectoral employment flows. In an analysis of total employment and the share employed in manufacturing, we find that reallocation shocks account for the majority of the variance in employment shares and dispersion, while aggregate shocks' contribution is modest. The two shocks' impact on aggregate employment is sensitive to the identifying assumptions. However, under two of the three methods considered, reallocation shocks account for over half of the variance in total employment. Including a measure of reallocation between firms in the manufacturing sector diminishes the effects of the intersectoral reallocation shocks on total and manufacturing employment, largely at the expense of the shocks to intrasectoral allocation. Together, the two reallocation shocks account for roughly half of the variance in total employment growth. We also find that permanent shifts in employment out of manufacturing depress job creation while increasing job destruction; by contrast, increases in employment reallocation between manufacturing establishments are associated with increases in both creation and destruction.

Median Unbiasedness of Estimators of Panel Data Censored Regression Models (with Bo E. Honoré). Econometric Theory, 9 499-503. 1993.

This note proves that the estimator of panel data Censored regression models proposed in Honoré (1992) is median unbiased when only one parameter is estimated. This result is obtained without parametric assumptions about the distribution of the error terms.