There remains considerable debate in the theoretical and empirical literature about the differences in the cyclical dynamics of firms by firm size. This paper contributes to the debate in two ways. First, the key distinction between firm size and firm age is introduced. The evidence presented in this paper shows that young businesses (that are typically small) exhibit very different cyclical dynamics than small/older busi-nesses. The second contribution is to present evidence and explore explanations for the finding that young/small businesses were hit especially hard in the Great Reces-sion. The collapse in housing prices accounts for a significant part of the large decline of young/small businesses in the Great Recession. [JEL E32, E24, D22, L26] IMF Economic Review advance online publication, 27 August 2013; doi:10.1057/imfer.2013.15 The 2007–09 recession is one of the two largest cyclical downturns experi-enced in the United States in the post-WWII era—the other being the 1982–83 recession. One obvious difference between these two downturns is the subsequent

No region of the United States fared worse over the post-war period than the “Rust Belt,” the heavy manufacturing zone bordering the Great Lakes. We argue that a lack of competition in labor and output markets in the Rust Belt’s main industries were responsible for much of the region’s decline. We formalize this theory in a dynamic general-equilibrium model in which productivity growth and regional employment shares are determined by the extent of competition. When plausibly calibrated, the model explains roughly half the decline in the Rust Belt’s manufacturing employment share. Industry evidence support the model’s predictions that investment and productivity growth rates were relatively low in the Rust Belt.

I analyze a model of production in a competitive environment with heterogeneous …rms. E ¢ cient production requires individuals within the organization to take noncontractible actions for which rewards must be informally promised rather than contractually assured. The credibility of such promises emerges from a …rm’s future competitive rents. Equilibrium competitive rents are ine ¢ ciently concentrated at the top. I explore several policy and empirical implications of this result. (JEL D21, D24, L14, L22)

Whether and to what extent environmental regulations influence the competitiveness of firms remains a hotly debated issue. Using detailed production data from tens of thousands of U.S. manufacturing plants drawn from Annual Survey of Manufactures, we estimate the effects of environmental regulations—captured by the Clean Air Act Amendments ’ division of counties into pollutant-specific nonattainment and attainment categories—on manufacturing plants ’ total factor productivity (TFP) levels. We find that among surviving polluting plants, a nonattainment designation is associated with a roughly 2.6 percent decline in TFP. The regulations governing ozone have particularly discernable effects on productivity, though effects are also seen among particulates and sulfur dioxide emitters. Carbon monoxide nonattainment, on the other hand, appears to increase measured TFP, though this appears to be concentrated among refineries. When we apply corrections for two likely sources of positive bias in these estimates (price mismeasurement and sample selection on survival), we estimate that the total TFP loss for polluting plants in nonattaining counties is 4.8 percent. This corresponds to an annual lost output in the manufacturing sector of roughly $21 billion in 2010 dollars. We thank participants at the University of Chicago, NBER EEE meetings, Lynn Riggs, and Frank Limehouse for

Abstract: Does adoption of broadband internet in firms enhance labor productivity and increase wages? And is this technological change skill biased or factor neutral? We exploit rich Norwegian data with firm-level information on value added, factor inputs and broadband adoption to answer these questions. We estimate production functions where firms can change their technology by adopting broadband internet. A public program with limited funding rolled out broadband access points, and provides plausibly exogenous variation of broadband adoption in firms. This enables us to address endogeneity of broadband adoption and examine how it shifts the production technology and changes the productivity and labor outcomes of different types of workers. We find that broadband adoption favors skilled labor by increasing its relative productivity. The increase in productivity of skilled labor is especially large for college graduates in fields such as science, technology, engineering and business. By comparison, broadband internet is a substitute for workers without high school diploma, lowering their marginal productivity. Consistent with the estimated changes in labor productivity, wage regressions show the expansion of broadband internet improves (worsens) the labor outcomes of skilled (unskilled) workers. We explore several possible explanations for the skill bias of broadband internet. We find suggestive evidence that

Industrial Relations, forthcoming Abstract: The effects of minimum wage increases in 2007-2009 are analyzed using a sample of restaurants from Georgia/Alabama. Store-level payroll records provide precise measures of compliance costs. Examined are multiple adjustment channels. Exploiting variation in compliance costs across restaurants, we find employment and hours responses to be variable and in most cases statistically insignificant. Channels of adjustment to wage increases and to changes in non-labor costs include prices, profits, wage compression, turnover, and performance standards.

helpful comments. Gennaioli thanks the Barcelona Graduate School of Economics and the European Research Council for financial support. Shleifer thanks the Kauffman Foundation for support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

ABSTRACT ———————————————————————————————————— How do reductions in barriers to international trade affect aggregate economic growth and welfare? We develop a novel dynamic model of growth and trade, driven by technology adoption, to better understand the interaction between technology diffusion, openness, and growth. In the model, heterogeneous firms choose to produce and trade or pay a cost and search within the economy to upgrade their technology. These upgrading and production choices determine the productivity distribution from which firms can acquire new technologies and, hence, the rate of technological diffusion and growth. In equilibrium, low productivity firms choose to upgrade their technology to remain competitive and profitable. Lower trade barriers enhance competitive forces that differentially affect firms of varying productivity levels. Lower barriers tend to reduce profits for all domestic firms by creating added competition from foreign firms, but improve profits for the highly productive firms by providing expanded opportunities through exporting. This shift in the relative value of firms provides increased incentives to upgrade technology, which are counterbalanced by an increasing cost of upgrading technology due to general equilibrium effects. In our baseline calibration, an increased growth rate generates a dynamic component of welfare that magnifies the traditional static component to increase the welfare gains from openness.

Legal institutions affect economic outcomes, but how much? This paper documents how costly supplier contract enforcement shapes firm boundaries, and quantifies the im-pact of this transaction cost on aggregate productivity and welfare. I embed a contracting game between a buyer and a supplier in a general-equilibrium macro-model. Contract en-forcement costs lead suppliers to underproduce. Thus, firms will perform more of the production process in-house instead of outsourcing it. On a macroeconomic scale, in countries with slow and costly courts, firms should buy relatively less inputs from sectors whose products are more specific to the buyer-seller relationship. I first present reduced-form evidence for this hypothesis using cross-country regressions. I use microdata on case law from the United States to construct a new measure of relationship-specificity by sector-pairs. This allows me to control for productivity differences across countries and sectors and to identify the effect of contracting frictions on industry structure. I then proceed to structurally estimate the key parameters of my macro-model. Using a set of counterfactual experiments, I investigate the role of contracting frictions in shap-ing productivity and income per capita across countries. Setting enforcement costs to US levels (alternative: zero) would increase real income by an average of 3.6 percent (7 percent) across all countries, and by an average of 10 percent (13.3 percent) across low-income countries. Hence, transaction costs and firm boundaries are important on a macroeconomic scale.

This paper estimates the incidence of state corporate taxes on workers, landowners, and firm owners in a spatial equilibrium model in which corporate taxes affect the lo-cation choices of both firms and workers. Heterogeneous, location-specific productivities and preferences determine the mobility of firms and workers, respectively. Owners of mo-nopolistically competitive firms receive economic profits and may bear the incidence of corporate taxes as heterogeneous productivity can make them inframarginal in their lo-cation choices. We derive a simple expression for equilibrium incidence as a function of a few estimable parameters. Using variation in state corporate tax rates and apportionment rules, we estimate the reduced-form effects of tax changes on firm and worker location decisions, wages, and rental costs. We then use minimum distance methods to recover the parameters that determine equilibrium incidence as a function of these reduced-form effects. In contrast to previous assumptions of infinitely mobile firms and perfectly immo-bile workers, we find that firms are only approximately twice as mobile as workers over a ten-year period. This fact, along with equilibrium impacts on the housing market, implies that firm owners bear roughly 40 % of the incidence, while workers and land owners bear 35 % and 25%, respectively. Finally, we derive revenue-maximizing state corporate tax rates and discuss interactions with other local taxes and apportionment formulae.