Brian K. Kovak

Price and Quality Dispersion in an Offshoring Market: Evidence from Semiconductor Production Services

We study cross-country differences in price and quality in the market for semiconductor wafer manufacturing services. Using a proprietary transaction-level data set, we document i) substantial constant-quality price differences across suppliers, and ii) shifts toward lower priced suppliers. Chinese producers on average charged 17% less than leading Taiwanese producers for otherwise identical products and increased their market share by 14.7 percentage points. The extent of cross-country price dispersion is also diminishing over a products life. A model with costs of switching suppliers is consistent with these pricing dynamics and can sustain realistic quality-adjusted price dispersion.

Overestimating the Effect of Complementarity on Skill Demand

Abstract Many recent studies estimate cost function parameters to measure the influence of capital-skill complementarity on changes in skill demand. This paper argues that standard cost function estimates assuming quasi-fixed capital systematically overestimate the effect of complementarity when subject to skill-biased technological change. While previous work has considered bias due to measurement error or general endogeneity concerns, this paper shows that upward bias results directly from cost minimizing behavior. I also develop a novel instrumental variables strategy based on the tax treatment of capital to more accurately measure the effect of complementarity. Although somewhat imprecise, the IV results support the models prediction that the standard approach overestimates the effect of complementarity.

Quality-Adjusted Price Measurement: A New Approach with Evidence from Semiconductors

Many markets exhibit price dispersion across suppliers of observationally identical goods. Statistical agencies typically assume this dispersion reflects unobserved quality, so standard price indexes do not incorporate price declines when buyers substitute toward lower-price suppliers. We show that long-run price differences across suppliers can be used to infer unobserved quality differences and propose an index that accommodates quality-adjusted price dispersion. Using transaction-level data on contract semiconductor manufacturing, we document substantial quality-adjusted price dispersion and confirm that a standard index is biased above our proposed index.

The Labor Market Effects of Offshoring by U.S. Multinational Firms

We use firm-level data on U.S. multinationals to show how offshoring affects domestic employment within and across firms. We introduce a new instrument for offshoring: Bilateral Tax Treaties, which reduce the cost of offshore activities. We find substantial heterogeneity in effects. A 10 percent increase in affiliate employment drives a 1.3 percent increase in employment at the U.S. parent firm, with smaller effects at the industry and regional levels. In contrast, offshoring by vertical multinationals drives declining employment among non-multinationals in the same industry, and firms opening new affiliates exhibit smaller domestic employment growth than those expanding existing affiliates.