Lecture5_Sorting_2019.pdf - ECON280D Lecture 5 Heterogeneous Agents Sorting Cecile Gaubert U.C Berkeley ECON280D Spring 2019 C Gaubert Lecture 5 Sorting

Lecture5_Sorting_2019.pdf - ECON280D Lecture 5...

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ECON280D Lecture 5: Heterogeneous Agents, Sorting Cecile Gaubert U.C. Berkeley ECON280D. Spring 2019. C. Gaubert Lecture 5 - Sorting 1 / 57
Spatial Sorting I Until now, we have seen frameworks with I Homogenous workers I Homogenous firms I Cities / regions differ ‘quantitatively’, not ‘qualitatively’ ECON280D. Spring 2019. C. Gaubert Lecture 5 - Sorting 2 / 57
Spatial Sorting I Until now, we have seen frameworks with I Homogenous workers I Homogenous firms I Cities / regions differ ‘quantitatively’, not ‘qualitatively’ I In reality, the composition of cities varies a lot I And varies systematically with city characteristics (e.g., size) ECON280D. Spring 2019. C. Gaubert Lecture 5 - Sorting 2 / 57
Example: educational attainment varies a lot across cities Share of population 25 and older with bachelor’s degree or higher 0.28 0.63 0.23 0.28 0.19 0.23 0.16 0.19 0.14 0.16 0.07 0.14 Data source: American Community Survey, 2005-2009, Series S1501 Plot: CBSAs for maptile ECON280D. Spring 2019. C. Gaubert Lecture 5 - Sorting 3 / 57
And covaries with city characteristics Populations of three educational groups across US metropolitan areas -1 -.5 0 .5 1 Log (demeaned) skilled population share 10 12 14 16 18 Metropolitan log population Bachelor's degree College dropout High school graduate -.5 -.25 0 .25 .5 Log (demeaned) skilled population share 10 12 14 16 18 Metropolitan log population Bachelor's degree College dropout High school graduate Data source: 2000 Census of Population microdata via IPUMS-USA ECON280D. Spring 2019. C. Gaubert Lecture 5 - Sorting 4 / 57
Sorting matters Skills and sectors are strongly linked to cities’ sizes: (a) Confounds inference: Agglomeration benefits vs compositional effects (b) Confounds counterfactuals: Making NYC 10x larger raises finance’s share of national employment and GDP (c) Questions exclusion restriction of Bartik-type instruments I Theory: all locations produce a homogeneous good I Empirics: exploit variation in industrial composition to estimate model parameters via shifts in local labor demand I Shift-share instrument: local composition × national changes I What variation does the instrument exploit? (d) Also: agents heterogeneity (e.g. high vs low skill) necessary to study distributional implications of shocks and policies, beyond aggregate effects ECON280D. Spring 2019. C. Gaubert Lecture 5 - Sorting 5 / 57
Continuum of ‘types’ and assignment models I A series of papers study sorting in spatial equilibrium with a continuum of ‘types’ (see review in Behrens and Robert-Nicoud ( Handbook chapter 2015) I Continuum of workers skill: Behrens, Duranton, Robert-Nicoud (2014), Davis and Dingel (2016, 2018) I Continuum of firms productivities a la Melitz: Gaubert(2018) I Assignments of heterogeneous individuals/firms to cities, with endogenous city characteristics determined in equilibrium I These papers rely on tools from the assignment literature I Popularized in the trade literature by Costinot (2009) I Continuum case can be quite tractable I Production, or preferences?

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