Student Faculty Macro Lunch: ZOOM, "Estimating Who Benefits From Productivity Growth: Local and Distant Effects of City TFP Shocks on Wages, Rents, and Inequality"

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Submitted by Brandon Eltiste on August 25, 2020
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Online
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Tuesday, October 27, 2020 - 12:00
About this Event

Enrico Moretti, Professor, UC Berkeley

Abstract: We estimate direct and indirect effects on US workers’ earnings, housing costs, and purchasing power from city-level increases in revenue TFP (total factor productivity). Drawing on four alternative instrumental variables, we consistently find that when a city receives greater revenue TFP growth in the manufacturing sector, there are substantial local increases in employment and average earnings. For renters, these direct effects on earnings are largely offset by increased cost of living; for homeowners, the benefits are more substantial. Local revenue TFP growth leads to greater inflow of more-skilled workers, reflecting lower geographic mobility of less-skilled workers, which mutes the wage gains for more-skilled workers and reduces local inequality. We also estimate substantial indirect effects on other cities, due to the substantial migration responses of US workers to local revenue TFP growth: 38% of the combined increase in workers’ purchasing power arises from indirect effects on other cities. These indirect benefits accrue especially to renters, and to more-skilled workers, such that neglecting these indirect effects would both understate the overall magnitude of benefits from revenue TFP growth and misstate the distributional consequences. Overall, the average US worker benefited substantially from revenue TFP growth in manufacturing from 1980 to 1990: summing direct and indirect effects, we find that purchasing power increased by 0.5-0.6% per year from 1980 to 2000. The direct effects and indirect effects vary substantially across US cities, however, such that these benefits depend substantially on where workers live.