Yoonsoo Lee

Entry, Exit and Plant-Level Dynamics over the Business Cycle

This paper analyzes the implications of plant-level dynamics over the business cycle. We first document basic patterns of entry and exit of U.S. manufacturing plants, in terms of employment and productivity, between 1972 and 1997. We show how entry and exit patterns vary during the business cycle, and that the cyclical pattern of entry is very different from the cyclical pattern of exit. Second, we build a general equilibrium model of plant entry, exit, and employment and compare its predictions to the data. In our model, plants enter and exit endogenously, and the size and productivity of entering and exiting plants are also determined endogenously. Finally, we explore the policy implications of the model. Imposing a firing tax that is constant over time can destabilize the economy by causing fluctuations in the entry rate. Entry subsidies are found to be effective in stabilizing the entry rate and output.

Geographic Redistribution of the U.S. Manufacturing and the Role of State Development Policy

Competition among state and local governments to lure businesses has attracted considerable interest from economists, as well as legislators and policy makers. This paper quantifies the role of plant relocations in the geographic redistribution of manufacturing employment and examines the effectiveness of state development policy. Only a few studies have looked at how manufacturing firms locate their production facilities geographically; they have used either small manufacturing samples or small geographic regions. This paper provides broader evidence of the impact of plant relocations using confidential establishment level data from the U.S. Census Longitudinal Research Database (LRD), covering the full population of manufacturing establishments in the United States over the period from 1972 to 1992. This paper finds a relatively small role for relocation in explaining the disparity of manufacturing employment growth rates across states. Moreover, it finds evidence of very weak effects of incentive programs on plant relocations.

Cross Sectoral Variation in the Volatility of Plant Level Idiosyncratic Shocks

We estimate the volatility of plant–level idiosyncratic shocks in U.S. manufacturing. We measure the variation in Revenue Total Factor Productivity not explained by either industry or economy–wide factors, or by establishments’ characteristics. We find that idiosyncratic shocks are much larger than aggregate shocks, accounting for about 80% of the overall uncertainty faced by plants. Plants in the most volatile sector are subject to about six times as much idiosyncratic uncertainty as plants in the least volatile. We provide evidence suggesting that idiosyncratic risk is higher in industries where the extent of creative destruction is likely to be greater.

Cross-Sectoral Variation in Firm-Level Idiosyncratic Risk

In this paper we use data from the U.S. Census Bureau’s Longitudinal Research Database in order to assess the extent of the cross-sectoral variation in firm-level idiosyncratic risk and shed light on its determinants. We find that firms producing investment goods exhibit greater volatility in sales and TFP growth than firms producing consumption goods. Our data suggests that this may be the case because winner–takes–all competition is more common for the former than for the latter.

The Importance of Reallocations in Cyclical Productivity and Returns to Scale: Evidence from Plant-Level Data

This paper provides new evidence that estimates based on aggregate data will understate the true procyclicality of total factor productivity. I examine plant-level data and show that some industries experience countercyclical reallocations of output shares among firms at different points in the business cycle, so that during recessions, less productive firms produce less of the total output, but during expansions they produce more. These reallocations cause overall productivity to rise during recessions, and do not reflect the actual path of productivity of a representative firm over the course of the business cycle. Such an effect (sometimes called the cleansing effect of recessions) may also bias aggregate estimates of returns to scale and help explain why decreasing returns to scale are found at the industry-level data.

Estimating GSP and Labor Productivity By State

In gauging the health of state economies, arguably the two most important series to track are employment and output. While employment by state is available about three weeks after the end of a month, data on output, as measured by Gross State Product (GSP), are only available annually and with a significant lag. This Policy Discussion Paper details how more current estimates of GSP can be generated using U.S. Gross Domestic Product and personal income along with individual states’ personal income. A straightforward share approach yields reasonable GSP estimates, but a more sophisticated econometric approach, at a cost of imposing more structure, yields even better ones. Both techniques are also applied to estimate nonfarm-business GSP in order to calculate a measure of labor productivity at the state level that follows as closely as possible the method used by the Bureau of Labor Statistics to calculate the national measure of labor productivity. We then briefly examine how labor productivity varies across states.

Relocation Patterns in U.S. Manufacturing

This paper summarizes relocation patterns in the U.S. manufacturing industry over the period 1972-1992, using plant- and firm-level data from the U.S. Census of Manufactures. This study contributes to the existing literature on firm dynamics by distinguishing entry due to relocation from entry by new firms, and exit due to relocation from permanent exit. In contrast to previous studies which report that entering plants experience relatively lower productivity, I find that some entering plants—specifically, those that are not new but merely relocated—have higher productivity. I also find a pattern of relocation that suggests that plants tend to be relocated to areas that are becoming new centers for the industry; namely, plants are moved out of areas in which the industry is heavily concentrated to areas where it is not, but these areas also have higher employment growth rates than other areas.