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 multi-worker 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. More productive firms select into outsourcing to save on labor costs and higher wage premia. Outsourcing leads firms to raise output and labor demand. Contractor firms pay lower wages. We find reduced-form support for all three implications in French administrative data, instrumenting revenue productivity with export demand shocks and outsourcing costs using variation in occupational exposure. After proving identification and structurally estimating the model, we find that the emergence of outsourcing in France lowers low skill service worker earnings and welfare by 3.1% but raises aggregate output by 1.8%.
Should I Stay or Should I Grow? How Cities Affect Learning, Inequality and Productivity
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.
The Local Root of Wage Inequality
Wage inequality varies substantially across space. I document two novel facts highlighting the role of employers—and the reallocation of workers between them—in shaping local wage inequality. First, the spatial concentration of high-paying employers explains one-third of the variation in wage inequality across cities. Second, between-city wage gaps widen over workers' careers as wage gains from job switches are larger in bigger cities. I propose a spatial framework that rationalizes these facts through two ingredients: heterogeneous employers and on-the-job search. Productive employers agglomerate in large cities to sidestep hiring frictions. Fiercer competition for workers endogenously arises, pushing productive employers to offer higher wages to maintain their target size. Greater inequality follows. I provide a proof of identification that does not target within-city wage inequality and show that the model replicates differences in wage inequality across cities. I quantify that the spatial concentration of productive employers boosts aggregate wages by reducing employers' market power but generates large spatial welfare disparities.
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.