Remote Work and City Structure
with Esteban Rossi-Hansberg and Charly Porcher, March 2023
We study the adoption of remote work within cities and its effect on city structure and welfare. We develop a dynamic model of a city in which workers can decide to work in the central business district (CBD) or partly at home. Working in the CBD allows them to interact with other commuters, which enhances their productivity through a standard production externality, but entails commuting costs. Switching between modes of labor delivery is costly, and workers face idiosyncratic preference shocks for remote work. We characterize the parameter set in which the city exhibits multiple stationary equilibria. Within this set, a coordination mechanism can lead to stationary equilibria in which most workers commute or most of them work partially from home. In these cases, large shocks in the number of commuters, like the recent lockdowns and self-isolation generated by the COVID-19 pandemic, can result in dynamic paths that make cities converge to a stationary equilibrium with large fractions of remote workers. Using cell-phone-based mobility data for the U.S., we document that although most cities experienced similar reductions in commuting during the pandemic, commuting shares in the 20 largest cities have stabilized at commuting levels that are only about 60% of pre-pandemic levels. In contrast, the smallest 500 cities have returned to pre-pandemic commuting levels. House price panel data by city show consistent changes in house price CBD-distance gradients. We structurally estimate the model for 274 U.S. cities and show that cities that have stabilized at a large fraction of remote work are much more likely to have parameters that result in multiple stationary equilibria. Our results imply welfare losses in these cities that average 2.7%.
A Penny for your Thoughts
with Walker Hanlon, Stephan Heblich, and Martin Schmitz; May 2022
How do communication costs affect the production of new ideas and inventions? To answer this question, we study the introduction of the Uniform Penny Post in Great Britain in 1840. This reform replaced the previous system of expensive distance-based postage fees with a uniform low rate of one penny for sending letters anywhere in the country. The result was a large spatially-varied reduction in the cost of communicating across locations. We study the impact of this reform on the production of scientific knowledge using citation links constructed from a leading academic journal, the Philosophical Transactions, and the impact on the development of new technology using patent data. Our results provide quantitative causal estimates showing how a fall in communication costs can increase the rate at which scientific knowledge is exchanged and new ideas and technologies are developed. This evidence lends direct empirical support to an extensive theoretical literature in economic growth and urban economics positing that more ideas can emerge from communication between individuals.
Read VoxEu contribution on this project: Communication Costs, Science and Innovation
Consumer Mobility and the Local Structure of Consumption Industries [older NBER Working Paper] [Older CEPR Discussion Paper]
with Sumit Agarwal and Brad Jensen; January 2020 [previously circulated as "The Geography of Consumption"]
We study local employment, establishment density, and establishment size across industries delivering final consumption, which comprise a substantial fraction of production, shape local amenities, and pay different wages. In a stylized model of consumer mobility, lower industry storability/durability concentrates demand in space, increasing equilibrium employment. Credit card transactions data show that consumer mobility is limited and varies substantially across sectors; moreover, expenditure declines more rapidly with distance in sectors transacted more frequently. Lower storability/durability, proxied by average transaction frequency, increases a sector's local employment via higher establishment density. Variation in consumer mobility is as economically significant as consumers' expenditure shares.
Read VoxEU contribution on this project: The Geography of Consumption
The Local Incidence of Trade Shocks
March 2016 (large reworking in progress)
The welfare implications of trade integration across areas of a country rely on local real wages, typically unmeasured in ex-post analyses and unavailable in counterfactual exercises. I develop and estimate a general equilibrium framework where local labor markets interact via commuting ties and overlaps in sectoral specialization. Changes in real wages are poorly predicted by standard measures of exposure to trade because, first, the price of local services co-moves with local workplace wages, and, second, residents adjust commuting patterns chasing higher wages. While more exposure to trade in comparative disadvantage sectors tends to lower nominal wages, all real wages grow. The two margins of adjustment are empirically active: in a standard difference-in-difference analysis for the United States, the share of a locality's residents working there, median rents and housing prices decline faster in places more exposed to increases in import competition from China.
work in progress
Headquarters and the Spatial Organization of the Firms (with Xiang Ding and Brad Jensen)
House Prices, Migration, and the Wealth Distribution (with Esteban Rossi-Hansberg)
Individual Mobility and the Distributional Consequences of Fuel Taxes: Evidence from France (with Prottoy Akhbar and James Harrigan)
Mobility Zones [NBER Working Paper]
Economic Letters, 2020, 109425.
This short note constructs Mobility Zones to facilitate the discussion on the geographic extent of individual mobility restrictions to control the spread of Covid-19. Mobility Zones are disjoint sets of counties where a given level of individual mobility directly or indirectly connects all counties within each set. I compute Mobility Zones for the United States and each state using smartphone-based mobility data between counties. The average area and population of Mobility Zones have sharply shrunk around the onset of the epidemic. Pre-Covid-19 Mobility Zones may be useful in calibrating quantitative studies of targeted restriction policies, or for policymakers deciding on the adoption of specific mobility measures. Two examples suggest the use of Mobility Zones to inform within-state differences and cross-state coordination in mobility restriction policies.
Mobility Zones Correspondences for the United States and individual States
International Trade and the Demand for U.S. Rail Services
in Jeffrey T. Macher and John W. Mayo, Editors, U.S. Freight Rail Economics and Policy: Are We on the Right Track?, Routledge, 2019
International economic integration creates links between local outcomes and economic conditions in potentially very distant places; in so doing, it affects the demand of shipment services within a country. The strength and direction of these links are shaped by many factors, including locations’ comparative advantage, input/output linkages, and the level of integration in local labor markets. In this chapter, we explore the significance of international trade for rail shipments; we further demonstrate how recent advances in the spatial economics literature can be used to infer changes in the demand of shipment services among U.S. counties following any change in local or global economic conditions.
Commuting, Migration and Local Employment Elasticities [On-line appendix] [NBER Working Paper]
with Steve Redding and Esteban Rossi-Hansberg; American Economic Review,Vol. 108(12), December 2018, pp. 3855-90
We provide theory and evidence that the elasticity of local employment to a labor demand shock is heterogeneous depending on the commuting openness of the local labor market. We develop a quantitative general equilibrium model that incorporates spatial linkages in goods markets (trade) and factor markets (commuting and migration). We quantify this model to match the observed gravity equation relationships for trade and commuting. We find that empirically-observed reductions in commuting costs generate welfare gains of around 3.3 percent. We provide separate quasi-experimental evidence in support of the model's predictions using the location decisions of million dollar plants.
Read VoxEU contribution on this project: Commuting, Migration and Local Employment Elasticities
Exporting and Organizational Change
with Lorenzo Caliendo and Esteban Rossi-Hansberg. In L. Y. Ing and M. Yu, World Trade Evolution: Growth, Productivity and Employment, Routledge, 2018
We study the effect of exporting on the organization of production within firms. Using French employer-employee matched data together with data on a firm's exporting activity, we find that firms that enter the export market and expand substantially reorganize by adding layers of management, hiring more and paying, on average, lower wages to workers in all pre-existing layers. In contrast, firms that enter the export market and expand little do not reorganize and pay higher average wages in all pre-existing layers. We then present some evidence that these effects are causal using pre-sample variation in the destination composition of exports, in conjunction with real exchange rate variation across countries. Our results are consistent with a growing literature using occupations to study the internal structure of firms and how their organization responds to opportunities in export markets.
The Anatomy of French Production Hierarchies [On-line appendix] [NBER Working Paper] [CEPR Discussion Paper] [Cowles Discussion Paper]
with Lorenzo Caliendo and Esteban Rossi-Hansberg, Journal of Political Economy, Vol. 123(4), August 2015, pp. 809-852
We use a comprehensive dataset of French manufacturing firms to study their internal organization. We first divide the employees of each firm into 'layers' using occupational categories. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. In addition, the probability of adding/dropping a layer is very positively/negatively correlated with value added. We then explore the changes in the wages and number of employees that accompany expansions in layers, or output. The empirical results indicate that reorganization, through changes in layers, is key to understand how firms expand and contract. For example, we find that firms that expand substantially add layers and pay lower average wages, in part by hiring less experienced employees, in all pre-existing layers. In contrast, firms that expand little and do not reorganize pay higher average wages in all pre-existing layers, partly by hiring more educated employees.
Read VoxEU contribution on this project: Firms Reorganize To Grow (by hiring workers that know and earn less)
Skill Bias, Trade, and Wage Dispersion [mathematica notebook] [published version]
Journal of International Economics, Vol. 83(2), March 2011, pp. 202-218
Wage ratios between different percentiles of the wage distribution have moved in parallel and then diverged in the U.S. in the last 50 years. In this paper, I study the theoretical response of wage ratios to skill-biased technical change and trade integration. I build a simple model of heterogeneous technology and heterogeneous workers that features complementarities between the quality of ideas and abilities. I show that changes to the skill bias of technology and to trade costs can both reproduce the observed pattern since (i) they have similar asymmetric effects on productive vs. unproductive firms, and (ii) positive assortative matching in the labor market transmits this asymmetry across high and low skill workers. Focusing on the different channels through which skill-biased technical change and trade integration operate suggests ways to disentangle the magnitude of each.
Culture, Gender, and Math [supplementary on-line material]
with Luigi Guiso, Paola Sapienza and Luigi Zingales, Science, 30 May 2008; 320 (5880): 1164-1165
Analysis of PISA results suggests that the gender gap in math scores disappears in countries with a more gender-equal culture.
Selected Media Coverage
· AAAS EurekAlert! · America.gov · Bloomberg· CBS News · Die Zeit (in German) · Kellogg Insight · La Repubblica (in Italian)
· Telegraph · The Economist · WebMD