Discussion Paper No. 432
October 19, 2023
Monopsony and Automation
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Abstract:
We examine the impact of labor market power on firms' adoption of automation technologies. We develop a model that incorporates labor market power into the task-based theory of automation. We show that, due to higher marginal cost of labor, monopsonistic firms have stronger incentives to automate than wage-taking firms, which could amplify or mitigate the negative employment effects of automation. Using data from US commuting zones, our results show that commuting zones that are more exposed to industrial robots exhibit considerably larger reductions in both employment and wages when their labor markets demonstrate higher levels of concentration.
Keywords:
automation; employment; labor market concentration; industrial robots; wage setting;
JEL-Classification:
J23; J30; J42; L11; O33;
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Discussion Paper No. 431
Export Induced Spatial Divergence
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Abstract:
How does export liberalization affect firm location choice and the spatial concentration of economic activity? We address these questions using the geo-coordinates of Chinese manufacturing firms and find that export widens inter-city and intra-city spatial disparities by reinforcing initially large industry centers. We first show that there has been an increased spatial concentration across cities in response to improved foreign market access. Only industry city pairs that were large initially increase their employment density following trade liberalization. Second, there has also been an increased spatial concentration within cities. For a given industry, districts closer to city centers are getting denser, mainly driven by the extensive margin. Third, the above effects are not exclusive to industries directly exposed to export shocks but also spill over positively to upstream and downstream industries and negatively to industries competing for the same workers locally.
Keywords:
firm location; localization; spatial concentration; regional inequality; export; comparative advantage;
JEL-Classification:
F6; F14; R12;
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Discussion Paper No. 430
October 13, 2023
Organizational Change and Reference-Dependent Preferences
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Abstract:
Reference-dependent preferences can explain several puzzling observations about organizational change. We introduce a dynamic model in which a loss-neutral firm bargains with loss-averse workers over organizational change and wages. We show that change is often stagnant or slow for long periods followed by a sudden boost in productivity during a crisis. Moreover, it accounts for the fact that different firms in the same industry often have significant productivity differences. The model also demonstrates the importance of expectation management even if all parties have rational expectations. Social preferences explain why it may be optimal to divide a firm into separate entities.
Keywords:
organizational change; productivity; reference points; loss aversion; social preferences;
JEL-Classification:
D23; D91; L2;
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Discussion Paper No. 429
September 19, 2023
Can Patience Account for Subnational Differences in Student Achievement? Regional Analysis with Facebook Interests
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Decisions to invest in human capital depend on people’s time preferences. We show that differences in patience are closely related to substantial subnational differences in educational achievement, leading to new perspectives on longstanding within-country disparities. We use social-media data – Facebook interests – to construct novel regional measures of patience within Italy and the United States. Patience is strongly positively associated with student achievement in both countries, accounting for two-thirds of the achievement variation across Italian regions and one-third across U.S. states. Results also hold for six other countries with more limited regional achievement data.
Keywords:
patience; student achievement; regions; social media;
JEL-Classification:
I21; Z10;
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Discussion Paper No. 428
Recession Experiences During Early Adulthood Shape Prosocial Attitudes Later in Life
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This paper explores whether the experience of a severe recession during early adulthood shapes individuals’ prosocial attitudes. The analysis uses survey responses to experimentally validated questions that measure prosocial attitudes for approximately 65,000 respondents in 75 countries. The identification approach exploits variation in recession experiences across 78 different birth cohorts. We find that exposure to a recession during early adulthood is associated with lower levels of prosociality later in life. The effect only emerges for experiences during impressionable years (age 18-25), mainly affects prosocial attitudes among men, and is orthogonal to the effect of experiences with democracy.
Keywords:
prosocial attitudes; impressionable years; experience effects; cohort effects;
JEL-Classification:
D91; E30; E71;
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Discussion Paper No. 427
Defying Gravity: What Drives Productivity in Remote Teams?
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Abstract:
How can teams organize for productive online collaboration? The coronavirus pandemic has led to a large and persistent shift toward remote work. Using fine-grained data from the world's largest platform for open-source software development, we find that the pandemic reduced the productivity of previously co-located teams substantially, whereas similar teams with remote work experience remained resilient. While access to remote talent and experience are important for overall team success, our results highlight the crucial role of communication for productive online collaboration. We find suggestive evidence that, with their peers shifting to online work, remote workers become better integrated into their teams' communication. We conclude that while teams' performance may suffer from the shift to remote work, setting up systems for effective online communication can help mitigate productivity loss.
Keywords:
gravity model; open source; knowledge workers; knowledge flows; remote work; online labor markets; COVID-19;
JEL-Classification:
J01; M54; O30; F14;
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Discussion Paper No. 426
September 15, 2023
Banking Crises under a Central Bank Digital Currency (CBDC)
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Abstract:
One of the main concerns associated with central bank digital currencies (CBDC) is the disintermediating effect on the banking sector in general, and the risk of bank runs in times of crisis in particular. This paper examines the implications of an interest-bearing CBDC on banking crises in a dynamic bank run model with a financial accelerator. The analysis distinguishes between bank failures due to illiquidity and due to insolvency. In a numerical exercise, CBDC leads to a reduction in the net worth of banks in normal times but mitigates the risk of a bank run in times of crisis. The financial stability implications also depend on how CBDC is accounted for on the asset side of the central bank balance sheet: if CBDC issuance is offset by asset purchases, it delays the onset of both types of bank failures to larger shocks. In contrast, if CBDC issuance is offset by loans to banks, it substantially impedes failures due to illiquidity, but only marginally affects bank failures due to insolvency.
Keywords:
central bank digital currency; financial intermediation; financial stability; bank runs;
JEL-Classification:
E42; E58; G01; G21;
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Discussion Paper No. 425
Selective Default Expectations
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Abstract:
This paper explores how selective default expectations affect the pricing of sovereign bonds in a historical laboratory: the German default of the 1930s. We analyze yield differentials between identical government bonds traded across various creditor countries before and after bond market segmentation. We show that, when secondary debt markets are segmented, a large selective default probability can be priced in bond yield spreads. Selective default risk accounted for one third of the yield spread of German external bonds over the risk-free rate during the 1930s. Selective default expectations arose from differences in the creditor countries' economic power over the debtor.
Keywords:
sovereign risk; debt default; secondary markets; creditor discrimination;
JEL-Classification:
F13; F34; G12; G15; H63; N24; N44;
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Discussion Paper No. 424
September 11, 2023
Abadie's Kappa and Weighting Estimators of the Local Average Treatment Effect
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In this paper we study the finite sample and asymptotic properties of various weighting estimators of the local average treatment effect (LATE), several of which are based on Abadie's (2003) kappa theorem. Our framework presumes a binary treatment and a binary instrument, which may only be valid after conditioning on additional covariates. We argue that one of the Abadie estimators, which is weight normalized, is preferable in many contexts. Several other estimators, which are unnormalized, do not generally satisfy the properties of scale invariance with respect to the natural logarithm and translation invariance, thereby exhibiting sensitivity to the units of measurement when estimating the LATE in logs and the centering of the outcome variable more generally. On the other hand, when noncompliance is one-sided, certain unnormalized estimators have the advantage of being based on a denominator that is bounded away from zero. To reconcile these findings, we demonstrate that when the instrument propensity score is estimated using an appropriate covariate balancing approach, the resulting normalized estimator also shares this advantage. We use a simulation study and three empirical applications to illustrate our findings. In two cases, the unnormalized estimates are clearly unreasonable, with ``incorrect'' signs, magnitudes, or both.
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JEL-Classification:
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Discussion Paper No. 423
Peer Effects Heterogeneity and Social Networks in Education
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This study focuses on the role of heterogeneity in network peer effects by accounting for network-specific factors and different driving mechanisms of peer behavior. We propose a novel Multivariate Instrumental Variable (MVIV) estimator which is consistent for a large number of networks keeping the individual network size bounded. We apply this approach to estimate peer effects on school achievement exploiting the network structure of friendships within classrooms. The empirical evidence presented is based on a unique network dataset from German upper secondary schools. We show that accounting for heterogeneity is not only crucial from a statistical perspective, but also yields new structural insights into how class size and gender composition affect school achievement through peer behavior.
Keywords:
network heterogeneity; peer effects; multivariate instrumental variables; minimum distance estimation; school achievement;
JEL-Classification:
D85; L14; I21; C30; C36;