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Working Paper
Artificial Intelligence and Technological Unemployment
How large are the effects of artificial intelligence (AI) on labor productivity and unemployment? We develop a labor-search model of technological unemployment where AI learns from workers, raises productivity, and displaces them if renegotiation fails. The model admits three steady states: no AI; some AI with limited capability, more job creation but higher unemployment; unbounded AI with endogenous growth and employment gains. Calibrated to U.S. data, the model implies a threefold productivity gain but a 23% employment loss, half within five years. Plausible parameters give rise to global ...
Working Paper
Assessing the Common Ownership Hypothesis in the US Banking Industry
The common ownership hypothesis (COH) states that firms with common shareholders, primarily large asset managers, compete less aggressively with each other. The U.S. banking industry is well suited to assess the common ownership hypothesis, because thousands of private banks without common ownership (CO) compete with hundreds of public banks with high and increasing levels of CO. This paper assesses the COH in the banking industry using more comprehensive ownership data than previous studies. In simple comparisons of raw deposit rate averages we document that the deposit rates of public banks ...
Working Paper
An Assignment Model of Knowledge Diffusion and Income Inequality
Randomness in individual discovery tends to spread out productivities in a population, while learning from others keeps productivities together. In combination, these two mechanisms for knowledge accumulation give rise to long-term growth and persistent income inequality. This paper considers a world in which those with more useful knowledge can teach those with less useful knowledge, with competitive markets assigning students to teachers. In equilibrium, students who are able to learn quickly are assigned to teachers with the most productive knowledge. The long-run growth rate of this ...
Working Paper
Entry, Variable Markups, and Business Cycles
The creation of new businesses declines in recessions. In this paper, I study the effects of pro-cyclical business formation on aggregate employment in a general equilibrium model of firm dynamics. The key features of the model are that the elasticity of demand faced by firms falls with their market share and that adjustment costs slow the reallocation of employment between firms. In response to a decline in entry, incumbent firms' market shares increase, their elasticity of demand falls, and they increase their markups and reduce employment. To quantify the model, I study the relationship ...
Journal Article
Measures of global bank complexity
Size and complexity are customarily viewed as contributing to the too-big-to-fail status of financial institutions. Yet there is no standard accepted metric for the complexity of a ?typical? financial firm, much less for a large firm engaged in global finance. This article provides perspective on the issue of complexity by examining the number, types, and geographical spread of global financial institutions? affiliates. The authors show that standard measures of institution size are strongly related to total counts of affiliates in an organization, but are more weakly aligned with other ...
Working Paper
Estimating the Competitive Effects of Common Ownership
If managers maximize the payoffs of their shareholders rather than firm profits, then it may be anticompetitive for a shareholder to own competing firms. This is because a manager?s objective function may place weight on profits of competitors who are held by the same shareholder. Recent research found evidence that common ownership by diversified institutional investors is anticompetitive by showing that prices in the airline and banking industries are related to generalized versions of the Herfindahl-Hirschman Index (HHI) that account for common ownership. In this paper we propose an ...
Report
Wealth, tastes, and entrepreneurial choice
The nonpecuniary benefits of managing a small business are a first order consideration for many nascent entrepreneurs, yet the preference for business ownership is mostly ignored in models of entrepreneurship and occupational choice. In this paper, we study a population with varying entrepreneurial tastes and wealth in a simple general equilibrium model of occupational choice. This choice yields several important results: (1) entrepreneurship can be thought of as a normal good, generating wealth effects independent of any financing constraints; (2) nonpecuniary entrepreneurs select into ...
Discussion Paper
Competition and the Decline of the Rust Belt
The decline of the heavy manufacturing industry in the American ?Rust Belt? is often thought to have begun in the late 1970s, when the United States suffered a significant recession. But theory suggests, and data support, that the Rust Belt?s decline started in the 1950s when the region?s dominant industries faced virtually no product or labor competition and therefore had little incentive to innovate or become more productive. As foreign imports increased and manufacturing shifted to the American South, the Rust Belt?s share of manufacturing jobs and total jobs declined dramatically. ...
Working Paper
The Effect of Common Ownership on Profits : Evidence From the U.S. Banking Industry
Theory predicts that "common ownership" (ownership of rivals by a common shareholder) can be anticompetitive because it reduces the weight firms place on their own profits and shifts weight toward rival firms held by common shareholders. In this paper we use accounting data from the banking industry to examine empirically whether shifts in the profit weights are associated with shifts in profits. We present the distribution of a wide range of estimates that vary the specification, sample restrictions, and assumptions used to calculate the profit weights. The distribution of estimates is ...