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Firm Heterogeneity and Macroeconomic Outcomes

Paper Session

Friday, Jan. 5, 2024 10:15 AM - 12:15 PM (CST)

Grand Hyatt, Lone Star Ballroom Salon A
Hosted By: American Economic Association & Committee on the Status of Women in the Economics Profession
  • Chair: Stephanie Aaronson, Federal Reserve Board

Firm Heterogeneity and Racial Labor Market Disparities

Caitlin Hegarty
Williams College


Black workers are more exposed to business cycle employment risk than white workers, even after adjusting for differences in industry and other cycle exposure factors. This paper introduces a new channel to explain the excess sensitivity of Black employment: employer heterogeneity in hiring. There are persistent differences in the job-finding and separation rates of Black and white workers across firms of different sizes. Black workers face higher separation rates and lower job-finding rates on average, with more extreme disparities at small firms. Meanwhile, when the labor market is weak, the job-finding rate falls more for Black workers, with the biggest drop coming from large firms. The second half of the paper introduces a search model with employer size-specific information frictions that captures these patterns. The abundance of available workers during downturns encourages firms to be more selective about the workers they hire, leading to worse hiring outcomes for minority workers at all firms. This selection effect can produce larger changes in hiring rates for the disadvantaged workers at firms with better screening technology, because these firms are able to capture a higher share of the matching market and they are more susceptible to general equilibrium effects.

Productivity Slowdown and Firm Exit: The Ins and Outs of Banking Crises

Andrea Rotarescu
Wake Forest University


This paper studies the adverse long-term impact of a decline in lender health on aggregate productivity. I develop a simple model of productivity-enhancing investment where firm exposure to fragile banks leads to losses on both the intensive and the extensive margin. The model is consistent with the surge in exits and prolonged drop in productivity growth observed in Spain in the aftermath of the 2008 financial crisis. The model also highlights the existence of a bias in the measurement of observable TFP growth during an episode of heightened exit. Using data on Spanish firm-bank relationships and bank bailouts, I implement an exit-adjusted measure of productivity growth and use it to quantify the output loss attributable to the financial friction. A decade after the crisis, output growth from the extensive margin recovers but the same is not true of the output level. The output shortfall from the intensive margin proves much more persistent, with the growth gap only beginning to narrow towards the end of the sample period. Together, these dynamics amount to a cumulative loss of 3 percent of pre-crisis GDP over ten years.

Skilled Immigration Restrictions as a Growth Barrier for Young Firms

Mishita Mehra
Grinnell College
Federico Mandelman
Federal Reserve Bank of Atlanta
Hewei Shen
University of Oklahoma


This paper quantifies the distortionary impacts of current skilled immigration policies in the US on aggregate productivity, particularly in technology intensive sectors. Our general-equilibrium firm entry-exit model a la Hopenhen and Rogerson (1993) includes skilled foreign labor accumulation subject to immigration policy frictions, and matches the data distribution of firms by age cohorts in high-technology sectors. The results indicate that eliminating major immigration policy frictions would increase average productivity by approximately 1%. The main mechanism is via increased entry and survival of younger firms and greater exit of less productive older firms. The model channels are consistent with data trends compiled from the Business Dynamics Statistics that confirm that increased skilled immigration policy restrictions since 2004 (through H-1B policies) have had an asymmetric impact on firms in the high-tech sector: while the average exit rate for younger firms increased, the corresponding rate for older firms decreased. Consistently, the proportion of younger firms and employees in such firms decreased towards older firms in the sector.

Expected Inflation and Welfare: The Role of Consumer Search

Francisca Sara-Zaror
Federal Reserve Board


In standard macroeconomic models, the costs of inflation are tightly linked to the price dispersion of identical goods. Therefore, understanding how price dispersion empirically relates to inflation is crucial for welfare analysis. In this paper, I study the relationship between steady-state inflation and price dispersion for a cross section of U.S. retail products using scanner data. By comparing prices of items with the same barcode, my measure of relative price dispersion controls for product heterogeneity, overcoming an important challenge in the literature. I document a new fact: price dispersion of identical goods increases steeply around zero inflation and becomes flatter as inflation increases, displaying an Upsilon-shaped pattern. Current sticky-price models are inconsistent with this finding. I develop a menu-cost model with idiosyncratic productivity shocks and sequential consumer search that reproduces the new fact and exhibits realistic price-setting behavior. In the model, inflation-induced price dispersion increases shoppers' incentives to search for low prices and thus competition among retailers. The positive welfare-maximizing inflation rate optimally trades off the efficiency gains from lower markups and the resources spent on search.

Marcus Casey
University of Illinois-Chicago
Seula Kim
Princeton University
Yueyuan Ma
University of California-Santa Barbara
Jane Ryngaer
University of Notre Dame
JEL Classifications
  • J0 - General
  • E0 - General