Essays on Spatial and Macroeconomics

Abstract

This first two essays of this collection investigate the relationship between the

firm-size distribution and the city-size wage premium. The third essay investigates

the effect of a shock to the steady-state rate of inflation on the wealth distribution.

The first chapter, co-authored with Clara Santamaria and Charly Porcher, investigates

the role of establishment size composition in explaining the city-size earnings

premium. Using administrative data from Spain, we first document a strong positive

correlation between city size and establishment size, measured as the number of

co-workers. We then decompose the city-size earnings premium into two components:

the increase in earnings explained by the increase in establishment size and the within

establishment-size premium.

The second chapter seeks to explain three key components of the growing regional

disparities in the U.S. since 1980, referred to as the Great Divergence by Moretti

(2012). Namely, big cities saw a larger increase in the relative wages of skilled workers,

a larger increase in the relative supply of skilled workers, and a smaller decline in

business dynamism. These trends can be explained by differences across cities in

the extent to which firms adopt new skill-biased technologies. In response to the

introduction of a new skill-biased, high fixed cost but low marginal cost technology,

firms endogenously adopt more in big cities, cities that offer abundant amenities for

high-skilled workers and cities that are more productive in using high-skilled labor.

The third chapter, co-authored with Ben Pugsley, develops an incomplete markets

economy to quantify the distribution of welfare gains and losses of the US “Volcker”

disinflation. Even with perfectly flexible prices, welfare costs from a disinflation may

be significant for households with nominal liabilities. The burden of wealth redistribution,

the benefits of a reduced inflation tax, and exposure to general equilibrium effects

on the real interest rate all vary across households. When calibrated to match the

micro and macro moments of the early 1980s high inflation environment, almost half of all borrowers (14 percent of all households) would prefer to avoid the redistribution

and equilibrium effects of the disinflation.