Spill-overs from good jobs

Type Report
Title Spill-overs from good jobs
Author(s)
Publication (Day/Month/Year) 2007
URL https://core.ac.uk/download/files/153/6606925.pdf
Abstract
Does attracting or losing jobs in high paying sectors have important spill-over effects on wages in
other sectors? The answer to this question is central to a proper assessment of many trade and industrial
policies. In this paper, we explore this question by examining how predictable changes in industrial
composition in favor of high paying sectors affect wage determination at the industry-city level. In
particular, we use US Census data over the years 1970 to 2000 to quantify the relationship between
changes in industry-specific city-level wages and changes in industrial composition. Our finding is
that the spill-over (i.e., general equilibrium) effects associated with changes in the fraction of jobs
in high paying sectors are very substantial and persistent. Our point estimates indicate that the total
effect on average wages of a change in industrial composition that favors high paying sectors is about
3.5 times greater than that obtained from a commonly used composition-adjustment approach which
neglects general equilibrium effects. We interpret our results as being most likely driven by a variant
of the mechanism recently emphasized in the heterogenous firm literature whereby changes in competitive
pressure cause a reallocation of employment toward the most efficient firms.

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