skill diversity of cities and entrepreneurship this paper analyses the effect of city skill diversity on local entrepreneurship it proposes a mechanism based framework to study the precise channels through which skill diversity contributes to

networking off madison avenue known for the key role that networking plays in the operation of agencies where interviews suggest that informal networking among close neighbors is critical to many agencies success networking involves the exchange of ideas and while there is no market place for these ideas exchanges may be more deliberate rather than just marshall s 1890 mysteries of the air type of information spillovers this paper examines the effect on productivity of having more near advertising agency neighborhoods and hence better opportunities for meetings and exchange within manhattan we will show that there is extremely rapid spatial decay in the benefits of having more near neighbors even in the close quarters of southern manhattan a finding that is new to the empirical literature and indicates our understanding of scale externalities is still very limited the finding indicates that having a high density of commercial establishments is important in enhancing local productivity an issue in lucas and rossi hansberg 2002 where within business district spatial decay of spillovers plays a key role we will argue also that in manhattan advertising agencies trade off the higher rent costs of being in bigger clusters nearer centers of action against the lower rent costs of operating on the fringes away from high concentrations of other agencies introducing the idea of trade offs immediately suggests heterogeneity is involved we will show that higher quality agencies are the ones willing to pay more rent to locate in greater size clusters specifically because they benefit more from networking while all 1 the research in this paper was conducted while the authors were census bureau research associates at the boston research data center research results and conclusions expressed are those of the authors and do not necessarily indicate concurrence by the census bureau the paper has been screened to ensure that no confidential data are revealed we acknowledge helpful comments from andrew foster on aspects of the paper and from participants in seminars at brown university lse and the university of toronto

skill biased technological change and rising wage inequality some problems and puzzles the recent rise in wage inequality is usually attributed to skill biased technical change sbtc associated with new computer technologies we review the evidence for this hypothesis focusing on the implications of sbtc for overall wage inequality and for changes in wage differentials between groups a key problem for the sbtc hypothesis is that wage inequality stabilized in the 1990s despite continuing advances in computer technology sbtc also fails to explain the evolution of other dimensions of wage inequality including the gender and racial wage gaps and the age gradient in the return to education

the long term costs of job displacement for young adult workers using nlsy data the authors estimate the long term costs of job displacement for young adults earnings and wage losses were large for the first three years following displacement compared to earnings losses found by other studies for more mature workers however earnings losses for these young adults were short lived with differences between observed and expected earnings narrowing considerably five years after job loss at that point the shortfall in annual earnings relative to what would have been expected absent job loss was 9 for men and 12 5 for women and the shortfall in hourly wages was 21 2 for men young workers also apparently differ from more established workers in the composition of total earnings losses for older workers total losses largely represent actual immediate earnings losses whereas for young workers the loss of opportunities for rapid earnings growth is more important

skills in the city this paper documents the allocation of skills across cities and estimates the impact of agglomeration on the hedonic prices of worker skills we find that large cities are more skilled than are small cities but only to a modest degree we also show that the increase in productivity associated with agglomeration as measured by the urban wage premium is larger for workers with stronger cognitive and people skills in contrast motor skills and physical strength are not rewarded to a greater degree in large cities urbanization thus enhances thinking and social interaction rather than physical abilities these results are robust to a variety of estimation strategies including using nlsy variables that control for worker quality and a worker msa fixed effect specification

where are all the self employed women push and pull factors influencing female labor market decisions previous research focuses on factors that influence self employment participation in part because entrepreneurship has been associated with economic growth this literature has tended to focus only on men or the comparison of women to men while ignoring substantial heterogeneity in employment decisions among women by investigating the impact of individual household and local economic and cultural characteristics on the labor market outcomes of different groups of women we get a more comprehensive picture of their self employment decision recognizing self employment as one of multiple labor market choices we use multinomial logit and two confidential geocoded micro level datasets to study women s career choices in urban areas we find that the effects of various push and pull factors differ between married and unmarried women in particular more progressive gender attitudes pull married women into self employment while household burdens associated with children push them into self employment for unmarried women the local business climate and individual characteristics have the strongest influence in both cases the motivations for women are quite different than men

search sorting and urban agglomeration studies have suggested that urban agglomeration enhances productivity by facilitating the firm worker matching process this article develops a model that formalizes this notion and demonstrates that when firm capital and worker skill are complementary in production urban agglomeration will tend to generate more efficient yet segregated matches as a result not only will local market size be positively associated with average productivity it will also generate greater between skill group wage inequality and a higher expected return to skill acquisition recent data from the counties and metropolitan areas of the united states is consistent with each of these implications

productivity gains from geographic concentration of human capital evidence from the cities abstract based on recent theoretical developments the argument is made that the average level of human capital is a local public good cities with higher average levels of human capital should therefore have higher wages and higher land rents after conditioning on the characteristics of individual workers and dwellings this prediction is supported by data for standard metropolitan statistical areas smsas in the united states where the smsa average levels of formal education and work experience are used as proxies for the average level of human capital the alternative explanations of omitted smsa variables and self selection are evaluated an estimate of the effect of an additional year of average education on total factor productivity is computed

does schooling cause growth a number of economists find that growth and schooling are highly correlated across countries a model is examined in which the ability to build on the human capital of one s elders plays an important role in linking growth to schooling the model is calibrated to quantify the strength of the effect of schooling on growth by using evidence from the labor literature on mincerian returns to education the upshot is that the impact of schooling on growth explains less than one third of the empirical cross country relationship the ability of reverse causality to explain this empirical relationship is also investigated

regional labor markets and the determinants of wage inequality from 1972 to 1990 the united states experienced the largest increase in wage inequality of any developed country the spread in log wages between the 90th and 10th percentiles of the male wage distribution increased by about 60 points and inequality increased within virtually every demographic or skill category of the labor force see chinhui juhn et al 1993 various explanations have been offered including changes in the relative demand for skill intensive goods international trade immigration of less skilled workers and increased labor force participation of women yet attempts to quantify the relative importance of these factors have not met with much success this leaves skill biased technical change as the residual claimant that rationalizes the data this paper uses regional differences in the evolution of wage inequality to provide new evidence on the determinants of relative wages using a model of factor demand in geographic markets i isolate contributions of i changing skill ratios in the labor force ii increased participation of women iii technical change and iv changes in the industrial composition of labor demand the data indicate that changing skill ratios and women s labor supply have affected the wages of low skilled men in the west the data indicate that increased immigration of less skilled hispanic and asian workers has adversely affected the wages of natives causing a greater increase in inequality there than in any other region of the country i modeling wage inequality in regional markets

long term effects of a recession at labor market entry in japan and the united states abstract we examine effects of entering the labor market during a recession on subsequent employment and earnings for japanese and american men using comparable household labor force surveys we find persistent negative effects of the unemployment rate at graduation for less educated japanese men in contrast to temporary effects for less educated american men the school based hiring system and the dismissal regulation prolong the initial loss of employment opportunities for less educated japanese men the effect on earnings for more educated groups is also stronger in japan although the difference between the two countries is smaller than for less educated groups

taxes and the capital structure of partnerships reit s and related entities academic finance has explored the effect of taxes on corporate capital structure in great detail by contrast the effect of taxes on the capital structure of partnerships reit s and related entities has received little attention the present paper shows that under general conditions the values of partnerships and reit s are invariant to leverage contradicting the sparse literature in the area a proof similar to that of modigliani miller is employed the effect of real world imperfections is also examined the theoretical relationship between corporate taxes and corporate capital structure has been thoroughly investigated e g miller 1977 and modigliani and miller mm 1958 1963 in contrast the relationship between taxes and the capital structure of partnerships real estate investment trusts reit s and related entities has been largely ignored in the literature perhaps the current thinking on the subject is best summarized in an article entitled capital structure theory and reit offerings by howe and shilling 1988 they state p 983 that theory suggests that the net tax gain to corporate borrowing is unambiguously negative for a reit they expand this viewpoint with non taxpaying firms must compete in the debt markets with firms for which interest expense results in tax savings these firms can afford to pay a higher interest on debt and thus there is a strong tax disadvantage to the use of debt for non taxpaying firms the present paper disputes the above reasoning it is argued that under a quite general model the value of a partnership reit or related entity is invariant to leverage this result is a strong one since it holds regardless of the competition mentioned in howe and shilling 1988 between taxpaying and nontaxpaying firms a model mirroring the essential features of partnerships reit s and related entities is presented in section i our basic invariance result is developed in this section specific complications in the current tax code are considered in section ii conclusions are also presented in this section

clusters of entrepreneurship employment growth is strongly predicted by smaller average establishment size both across cities and across industries within cities but there is little consensus on why this relationship exists traditional economic explanations emphasize factors that reduce entry costs or raise entrepreneurial returns thereby increasing net returns and attracting entrepreneurs a second class of theories hypothesizes that some places are endowed with a greater supply of entrepreneurship evidence on sales per worker does not support the higher returns for entrepreneurship rationale our evidence suggests that entrepreneurship is higher when fixed costs are lower and when there are more entrepreneurial people

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

making markets for structured mortgage derivatives abstract this paper distinguishes between securitization in which simple pass through instruments are created and structuring in which mortgages derivative claims are created the point is to explain how structuring a transaction brings value to a deal s underwriter briefly an underwriter must defeat arbitrage between pass throughs and derivatives the potential for market segmentation and price discrimination by the underwriter is used to analyze the structuring process in the course of the analysis the legal rules for trusts the algebraic rules for structuring and the limits on permissible price discrimination are discussed results for an actual transaction illustrate the important features of the analysis

initial labor market conditions and long term outcomes for economists each year graduate students entering the academic job market worry that they will suffer due to uncontrollable macroeconomic risk given the importance of general human capital and the relative ease of publicly observing productivity in academia one might expect that long term labor market outcomes for students graduating in unfavorable climates will resemble long term outcomes for those graduating in favorable climates in this paper i analyze the relationship between macroeconomic conditions at graduation initial job placement and long term outcomes for ph d economists from seven programs using macroeconomic conditions as an instrument for initial placement i show that a quality and type of initial job have a causal effect on long term job characteristics i also show that better initial placement increases research productivity which helps to limit the set of economic models that can explain the effect of initial placement on long term jobs

local labor force education new business characteristics and firm performance it is often asserted that a highly educated workforce is vital to improving the competitive position of american businesses especially by boosting entrepreneurship to examine this contention we use population census data and a new panel data of startup firms to examine how the education and skill level of the local labor force are related to the creation and success of new businesses this paper studies relationship between education entrepreneurship and businesses outcomes and considers simultaneously both the education of the entrepreneur and of the workforce where the entrepreneurs operate their businesses consistent with this simultaneous focus our initial results indicate that more educated entrepreneurs tend to be located in metropolitan areas with more educated workforces moreover highly educated areas have above average entrepreneurship rates finally the level of education of entrepreneurs is strongly related to positive business outcomes especially for college graduates compared to those with less than a four year degree

the effect of implicit contracts on the movement of wages over the business cycle evidence from micro data in this paper we address the question of whether wages are affected by labor market conditions in a manner more consistent with a contract approach than with a standard spot market model from a simple implicit contract model we derive implications about the links between wages and past labor market conditions using individual data from the current population survey and the panel study of income dynamics we find that an implicit contract model with costless mobility describes these links better than either a simple spot market model or an implicit contract model with costly mobility

wages rents and the quality of life this study focuses on the role of wages and rents in allocating workers to locations with various quantities of amenities the theory demonstrates that if the amenity is also productive then the sign of the wage gradient is unclear while the rent gradient is positive the theory is extended to include the housing market and nontraded goods these extensions require little modification of the conclusion the empirical work on wages shows that the regional wage differences can be explained largely by these local attributes with the use of site price data implicit prices are estimated and quality of life rankings for the cities are computed

new directions in entrepreneurship research with the kauffman firm survey data is a fundamental impediment to a better understanding of the multifaceted process of new firm creation with better data we can form a better understanding of the causes constraints and outcomes associated with the decision to launch a new business towards this end the kauffman foundation commissioned an eight wave panel of businesses that were formed in 2004 chronicling a single cohort s evolution from birth through important business milestones this issue of small business economics focuses on papers that use the kauffman firm survey to examine new research questions in entrepreneurship articles in this issue analyze new research topics in entrepreneurship as well as shed light on enduring questions in the literature

changes in organizational structure and shareholder wealth the case of limited partnerships this paper analyzes the consequence for shareholders of a change in organizational form the conversion of a corporation or the spin off of a unit into a limited partnership theory suggests that prior to the tax reform act of 1986 the tax benefits of conversion to a limited partnership and the creation of a new entity separate from the parent corporation should have a positive effect on shareholder wealth on the other hand the increase in agency costs of such an organizational change should decrease the wealth of shareholders empirical results lend support to hypotheses that predict an increase in stock price at the announcement of the conversion but cannot identify the source of the gain

cities and the growth of wages among young workers evidence from the nlsy abstract human capital based theories of cities suggest that large economically diverse urban agglomerations increase worker productivity by increasing the rate at which individuals acquire skills one largely unexplored implication of this theory is that workers in big cities should see faster growth in their earnings over time than comparable workers in smaller markets this paper examines this implication using data on a sample of young male workers drawn from the national longitudinal survey of youth 1979 cohort the results suggest that earnings growth does tend to be faster in large economically diverse local labor markets defined as counties and metropolitan areas than in smaller more specialized markets yet when examined in greater detail i also find that this association tends to be the product of faster wage growth due to job changes rather than faster wage growth experienced while on a particular job this result is consistent with the idea that cities enhance worker productivity through a job search and matching process and thus that an important aspect of learning in cities may involve individuals learning about what they do well

the attenuation of human capital spillovers abstract this paper uses 2000 census data to estimate the relationship of agglomeration and proximity to human capital to wages the paper takes a geographic approach and focuses on the attenuation of agglomeration and human capital effects differencing and instrumental variable methods are employed to address endogeneity in the wage agglomeration relationship and also to deal with measurement error in our agglomeration and human capital variables three key results are obtained first the spatial concentration of employment within five miles is positively related to wage second the benefits of spatial concentration are driven by proximity to college educated workers an instance of human capital spillovers third these effects attenuate sharply with distance

physicians services and the division of labor across local markets this paper reports empirical evidence of systematic cross locale variation in the degree of division of labor among physicians a theoretical model based on an individual producer s trade off between increasing returns and falling marginal revenue within each activity motivates the empirical tests at two levels of aggregation specialization is correlated with local demand shifters for medical services at the individual level i find systematic differences in the range of procedures performed within a specialty class general practitioners working fewer hours practicing in more populated counties or practicing in countries with more elderly produce a narrower range of procedures

an alternative framework for evaluating welfare losses in the health care market a recurring theme in the health economics literature is that excess health insurance reduces society s welfare this proposition is considered to be a truism by most health economists feldman and morrisey 1990 report that two thirds of american and canadian health economists surveyed agree with the statement that the level and type of health insurance held by most u s families generate substantial welfare loss due to over consumption of medical services consequently most research in the area has attempted to identify the exact dollar value of this welfare loss in this note i will try to show that the traditional method of calculating welfare losses from excess health insurance is severely flawed because it is based on assumptions about consumer behavior that are not supported by the available empirical evidence furthermore the methodology masks other potentially greater societal welfare losses that are likely to exist in the health care sector and blinds us from seeking the most effective public policy remedies this note suggests an alternative framework for considering welfare losses based on researchers evaluations of medical necessity

migration the life cycle and state benefits how low is the bottom i show that among women likely to use welfare movers move to higher benefit states i also find that the probability likely welfare users will move at all is lower in higher benefit states this effect is concentrated early in the life cycle as theory predicts i construct a theoretical framework to measure the impact of welfare migration on optimal state benefits simulation results suggest little impact in higher benefit states but possibly a more substantial impact in other states finally evidence suggests little reason for concern due to welfare migration in using cross state variation in welfare generosity to identify incentive effects of the welfare system on other outcome variables

are college graduates more responsive to distant labor market opportunities abstract are highly educated workers better at locating in areas with high labor demand to answer this question i use three decades of u s census data to estimate a mcfadden style model of residential location choice i test for education differentials in the likelihood that young workers reside in states experiencing positive labor demand shocks at the time these workers entered the labor market i find effects of changes in state labor demand on college graduate location choice that are several times greater than for high school graduates nevertheless medium run wage effects of entry labor market conditions for college graduates equal or exceed those of less educated workers

the returns to computer use revisited have pencils changed the wage structure too are the large measured wage differentials for on the job computer use a true return to computer skills or do they just reflect that higher wage workers use computers on their jobs we examine this issue with three large cross sectional surveys from germany first we confirm that the estimated wage differential associated with computer use in germany is very similar to the u s differential second we also measure large differentials for on the job use of calculators telephones pens or pencils or for those who work while sitting down we argue that these findings cast some doubt on the literal interpretation of the computer use wage differential as reflecting true returns to computer use or skill

spatial dynamics and heterogeneity in the cyclicality of real wages neither the issue of how local and aggregate labor markets interact over time nor the issue of how heterogeneity by education race and other factors interacts with these spatial dynamics has prev

storable good monopoly the role of commitment we study dynamic monopoly pricing of storable goods in an environment where demand changes over time the literature on durables has focused on incentives to delay purchases our analysis focuses on a different intertemporal demand incentive for consumers the key force on the consumer side is advance purchases or stockpiling this stockpiling motive can be present in the case of standard durables as well in environments unmodeled in the prior literature we show that if the monopolist cannot commit then prices are higher in all periods and social welfare is lower than in the case in which the monopolist can commit this is in contrast with the durable goods analysis in the literature on the coase conjecture