Macro Roundup

great new NEBR paper finds that the interplay btw population and firm demographics explains the increase in concentration, decline in firm entry rates and the decline in the labor share

"...The US economy has undergone a number of puzzling changes in recent decades. Large firms now account for a greater share of economic activity, new firms are being created at a slower rate, and workers are getting paid a smaller share of GDP.... Three long-term changes in the US economy have attracted a great deal of attention. First, economic activity is being concentrated in fewer firms. For example, the fraction of workers employed by large firms increased by 6 percentage points since 1978. Second, the entrepreneurship rate — the ratio of new firms to total firms — has nearly halved since the 1970s. Third, the share of GDP going to labor, once thought to be stable, has declined since 1975....This paper shows thatchanges in population growth provide a unified quantitative explanation for these long-term changes. The mechanism goes through firm entry rates. A decrease in population growth lowers firm entry rates, shifting the firm-age distribution towards older firms. Heterogeneity across firm age groups combined with an aging firm distribution replicates the observed trends. Micro data show that an aging firm distribution fully explains i) the concentration of employment in large firms, ii) and trends in average firm size and exit rates, key determinants of the firm entry rate. An aging firm distribution also explains the decline in labor’s share of GDP. In our model, older firms have lower labor shares because of lower overhead labor to employment ratios. Consistent with our mechanism, we find that the ratio of nonproduction workers to total employment has declined in the US....We close by discussing the sources of labor force growth. We decompose labor force growth into three components: birth rates sixteen years prior, the growth in participation rate, and a residual term that captures rates of migration, death and institutionalization. We find that birth rates sixteen years prior account for the bulk of changes in labor force growth. We conclude that the rise and fall of labor force growth is primarily due to the baby boom..."

Hugo Hopenhayn, Julian Neira and Rish Singhania, "From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share," National Bureau of Economic Research, December 2018, https://www.nber.org/papers/w25382

new NBER paper supports your view that potential high impact entrepreneurial efforts come out of the "Google's" of the world. increases in corporate R&D leads to "R&D-induced spawning" note these spillovers do not harm the parent firm, but they are not beneficial

"...We show that corporate investment in research and development (R&D) increases the rate at which employees depart to launch new firms. This effect is not obvious, as R&D might increase the firm’s growth options or make it a more interesting place to work, leading to greater employee retention. Evidence that many successful entrepreneurs are former employees of high-tech, large firms motivates our research (Bhide 2000,Klepper 2001). Especially relevant is Gompers, Lerner & Scharfstein (2005), who observe that around 40 percent of venture capital-backed executive teams previously worked at a public company, often those with entrepreneurial cultures..... There is a robust relationship between firm R&D investment and entrepreneurial spawning. A one standard deviation increase in R&D is associated with a 18.7 percent increase in entrepreneurial spawning, relative to sample mean of 1.3 percent.The model includes firm, state-year, and industry-year fixed effects, as well as a rich array of time-varying firm characteristics, including total investment and establishment-level payroll and employment. Further, the results are robust to including four-digit SIC code fixed effects, suggesting that narrow industries do not explain the result. Finally, they are robust to several measures of entrepreneurial spawning.... This paper shows that corporate R&D investment leads to entrepreneurial spawning, in which employees depart to launch their own firms. We do this both in tightly controlled fixed effects regressions and in an instrumental variables approach, where we instrument for R&D using federal and state R&D tax credits. We find that for the parent firm, the spawning effect of R&D yields no obvious contractual benefits, nor is it observably costly. Our evidence is consistent with corporate R&D being a new channel for knowledge spillovers, as well as a new source of high-tech startups. Our results have two policy implications. First, the spawning effect of R&D implies greater corporate underinvestment in R&D relative to the social optimum than previously thought. Second, the presence of knowledge spillovers are one motivation for offering firms tax credits that lower their cost of R&D investment. The spawning effect of R&D is much larger in the instrumental variables model than in the fixed effects regression. This suggests, albeit in a partial equilibrium sense, that R&D tax credits are effective in that they lead to greater R&D-induced entrepreneurial spawning, which is likely a form of knowledge spillover.Our finding also speaks to the theory of the firm. Zingales (2000) writes that “Entrepreneurship is the process by which new firms are created. But new firms are created to exploit growth options existing firms cannot or do not want to exploit. Thus, a theory able to explain what growth options existing firms are willing and able to exploit will also identify the opportunities for entrepreneurial activity.” We offer a concrete mechanism tying entrepreneurship to the growth options that an incumbent does not to exploit.....In sum, it appears likely that R&D-induced spawning is a direct form of knowledge spillover. We document that a remarkable 88 percent of spawns are located in the same state as the parent...."

Tania Babina and Sabrina T. Howell, "Entrepreneurial Spillovers from Corporate R&D," National Bureau of Economic Research, December 2018, https://www.nber.org/papers/w25360

"...A 2015 study published in PLOS ONE followed how many null results were found in trials funded by the National Heart, Lung and Blood Institute before and after researchers were required to register their protocols at a public website. This rule was introduced in 2000 in part because of a general sense that researchers were subtly altering their work — after it was begun — to achieve positive results. In the 30 years before 2000, 57 percent of trials published showed a “significant benefit.” Afterward, only 8 percent did...."
Aaron Carroll, Congratulations on the Promotion. But Did Science Get a Demotion?"New York Times, December 31, 2018, https://www.nytimes.com/2018/12/31/upshot/congratulations-on-the-promotion-but-did-science-get-a-demotion.html

terrific new Corrado, using AWS data finds massive falls in prices not being captured by GDP

after his adjustment"....boost the average annual growth rate during 2007-2015 by roughly 2 percentage points compared with official estimates. For nominal GDP growth, including this own-account investment would add three basis points per year to the growth rate during this period..."

David Byrne, Carol Corrado, Daniel E. Sichel, "The Rise of Cloud Computing: Minding Your P's, Q's and K's," National Bureau of Economic Research, October 2018, https://www.nber.org/papers/w25188

"....Cloud computing—computing done on an off-site network of resources accessed through the Internet—is revolutionizing how computing services are used. However, because cloud is so new and it largely is an intermediate input to other industries, it is difficult to track in the U.S. statistical system. Moreover, there is a paucity of systematic information on the prices of cloud services. To begin filling this gap, this paper does three things. First, we define the different segments of cloud computing and document its explosive expansion. Second, we develop new hedonic prices indexes for cloud services based on quarterly data for compute, database, and storage services offered by Amazon Web Services (AWS) from 2009 to 2016.....Our basic finding is that prices for cloud services have fallen rapidly and that the use of the cloud has grown tremendously as has investment in the related infrastructure of IT equipment and software. For our analysis of prices, we assembled a unique data set with quarterly data on prices and characteristics for cloud services offered by the largest provider, Amazon Web Services (AWS), since the first quarter of 2009 when AWS began posting prices on the Internet. The data cover AWS’ basic compute, database, and storage products..... These indexes fall rapidly over the sample period, with quickening (and double digit) rates of decline for all three products starting at the beginning of 2014..... For AWS, the price for their compute product fell at an average rate of about 7 percent during 2000-2016. Price declines were slower before 2014 and more rapid starting in the beginning of 2014. Interestingly, 2014 is the year when Microsoft and Google began posting prices for their cloud offerings on the Internet. We suspect that AWS’ large price declines were a response to that change in the competitive environment. For AWS’ database product, prices fell at an average rate of more than 11 percent during 2009-16. Here too, prices fell relatively modestly until the beginning of 2014, after which they fell at an average rate of more that 22 percent through the end of 2016. AWS’ storage product followed a similar pattern, with prices falling at an average annual rate of about 17 percent during 2009-2016 and even faster declines starting in 2014.....Finally, we highlight the puzzle of why investment in IT equipment in the NIPAs has been so weak while capital expenditures have exploded for IT equipment associated with cloud infrastructure. We suggest that cloud service providers are undertaking large amounts of own-account investment in IT equipment and that some of this investment may not be captured in GDP..... As seen in figure 9, nominal IT equipment and software investment including our estimate of own-account would be $58 billion higher in 2015 than in the official estimates, amounting to 0.32 percent of GDP. For nominal investment in IT equipment, adding this own-account investment would boost the average annual growth rate during 2007-2015 by roughly 2 percentage points compared with official estimates. For nominal GDP growth, including this own-account investment would add three basis points per year to the growth rate during this period..... We find that cloud computing has exploded. By available measures, the quantity of cloud activity has grown extremely rapidly as has associated capital investment. At the same time, prices of basic cloud services have fallen rapidly since 2009, based on a unique dataset we assembled. However, because cloud is so new and so much of it is intermediate input, it is challenging to track in the statistical system, and the available data do not distinguish between cloud-based and traditional services, whether services are purchased or produced internally, or generated at the “edge.” We highlight one area where real GDP may be understated by a noticeable amount as a result of changes in the economy related to the rise of cloud computing...."

would note that while it might be missing in GDP Mr. Market seems to be pricing it into AMZN/MSFT value versus peer firms not in the space

".... 17 of 30 studies (57%) published prior to 2000 showed a significant benefit of intervention on the primary outcome in comparison to only 2 among the 25 (8%) trials published after 2000 (χ2=12.2,df= 1, p=0.0005).There has been no change in the proportion of trials that compared treatment to placebo versus active comparator. Industry co-sponsorship was unrelated to the probability of reporting a significant benefit. Pre-registration in clinical trials. gov was strongly associated with the trend toward null findings....The number NHLBI trials reporting positive results declined after the year 2000. Prospective declaration of outcomes in RCTs, and the adoption of transparent reporting standards, as required byclinicaltrials.gov, may have contributed to the trend toward null findings...."

Robert Kaplan and Veronica Irvin, "Likelihood of Null Effects of Large NHLBI Clinical Trials Has Increased over Time," PLOS One, August 5, 2015, https://journals.plos.org/plosone/article

"...By buying Treasurys and mortgage-backed securities, the Fed acquired or offset some 45% of all federal debt issued during the Obama era—about four times the share of federal debt the Fed purchased during World War II..... Historically, banks held few excess reserves as the Fed did not pay interest on them. The money supply changed when the Fed altered bank reserves through lending or buying and selling securities. Now if market interest rates rise and the Fed does not act by raising the rate it pays on reserves, the money supply increases as banks increase lending. As a result, to maintain any given money supply, the Fed must respond to changes in market interest rates. In doing so the Fed becomes an interest-rate follower, not a leader...."
Phil Gramm and Thomas Savings, "The Fed’s Obama-Era Hangover,"Wall Street Journal, January 1, 2018, https://www.wsj.com/articles/the-feds-obama-era-hangover-11546374393

Amy Harmon, "James Watson Won’t Stop Talking About Race,"New York Times, January 1, 2018, https://www.nytimes.com/2019/01/01/science/watson-dna-genetics-race.html

"...The key point to realize is that in today’s globalized corporate system, a lot of any country’s corporate sector, our own very much included, is actually owned by foreigners, either directly because corporations here are foreign subsidiaries, or indirectly because foreigners own American stocks. Indeed, roughly a third of U.S. corporate profits basically flow to foreign nationals - which means that a third of the tax cut flowed abroad, rather than staying at home. This probably outweighs any positive effect on GDP growth. So the tax cut probably made America poorer, not richer... Meanwhile, since the tax cut isn’t paying for itself, it will eventually have to be paid for some other way - either by raising other taxes, or by cutting spending on programs people value. The cost of these hikes or cuts will be much less concentrated on the top 10 percent than the benefit of the original tax cut. So it’s a near-certainty that the vast majority of Americans will be worse off thanks to Trump’s only major legislative success......"
Paul Krugman, "The Trump Tax Cut: Even Worse Than You’ve Heard,"The New York Times, January 1, 2018, https://www.nytimes.com/2019/01/01/opinion/the-trump-tax-cut-even-worse-than-youve-heard.html

Gordon Green and John Coder, "Household Income Trends," Sentier Research, December 28, 2018, http://www.sentierresearch.com/Charts/HouseholdIncomeIndex_UnemploymentRate_11_2018.jpg

John Yoo, "2019 could be an incredible and historic year for the Supreme Court - Here’s why," Fox News, December 30, 2018, https://www.foxnews.com/opinion/2019-could-be-an-incredible-and-historic-year-for-the-supreme-court-heres-why

2019 could be an incredible and historic year for the Supreme Court - Here’s why

The year ahead has the potential to be historic for the U.S. Supreme Court. With Justice Brett Kavanaugh replacing the inconsistent Justice Anthony M. Kennedy, conservatives have a majority on the court for the first time since 1936.

More importantly, for the first time in generations a majority of the justices on the court believe, to varying degrees, in interpreting the Constitution according to its original meaning. This could produce a return of humility to the judiciary.

For decades, liberals have pushed a view of the high court and a method of judging that is antithetical to our written Constitution. Founded on beliefs from the legal realism movement - still the primary approach taught today in American law schools - the left deems the law as just politics and power.

Under this view, the courts are to worry about outcomes rather than the process of determining what the law means and applying it to the facts of the case. Forget about the ideal of blind Lady Justice. She has both eyes wide open to hand legal victory to the preferred party.

This worldview was on display when President Obama said he wanted judges who had empathy. Of course, this was selective empathy, such as for racial minorities, unions and criminal suspects - not for corporations or the police.

But the Constitution demands a better way. As Chief Justice John Roberts suggested during his confirmation hearings, judges are like umpires - just calling balls and strikes. In other words, a judge’s job is to follow the right process, not reach a preferred outcome. The outcomes take care of themselves.

These two competing visions of the proper role of a judge lead to two very different ways of interpreting the Constitution. For the judge-as-philosopher-king model, judges exercise the same power as legislators, free to change the meaning of the law as they see fit. Hence, the Supreme Court can write its own values into the Constitution.

For the judge-as-umpire model, however, the court does not make the law. Rather, it determines what the words of the law meant at the time of the law’s enactment, and applies that meaning to the case at hand. This methodology of discerning the law according to its original meaning is called “originalism” when dealing with the Constitution and “textualism” when dealing with statutes.

And in some form or another, this way of judging goes all the way back to our nation’s founding.

From the Constitution’s perspective, originalism is superior to an approach where judges just implement their policy preferences. There are at least two reasons for this.

As Chief Justice John Roberts suggested during his confirmation hearings, judges are like umpires - just calling balls and strikes.

First, originalism is the only legitimate way for judges to exercise the “judicial power” granted them by the Constitution. That power is abused - or more accurately, legislative power is usurped - if, as Alexander Hamilton warned, “courts … exercise WILL instead of Judgment, the consequence (being) the substitution of their pleasure to that of the legislative body.”

Second, allowing courts to bend the law to their own desires weakens the republic. The power to amend the Constitution was left with the people - the sovereign - to be exercised through state constitutional conventions and their representatives in Congress.

President Abraham Lincoln warned that “if the policy of the Government upon vital questions affecting the whole people is to be irrevocably fixed by decisions of the Supreme Court … the people will have ceased to be their own rulers, having to that extent practically resigned their Government into the hands of that eminent tribunal.”

Now committed to originalism, a majority of the Supreme Court can begin the process of restoring the Constitution to its original meaning and returning the judiciary to its place as the “least dangerous” branch. And that restoration may well begin in 2019.

Perhaps the most immediate area, but also the most influential, will be cutting back the administrative state. The federal government has swollen to a gargantuan size with numerous federal agencies passing tens of thousands of pages of regulations every year that never undergo approval by the House and Senate and signature by the president.

When designing the Constitution, the founders understood that the accumulation of power can lead to tyranny. To prevent this, they diffused power at the federal level by creating three branches of government exercising three different powers. The founders also diffused power between the federal and state governments. This created what Madison called a “double security” for the people’s liberty.

But President Woodrow Wilson introduced the idea that these constitutional protections have become antiquated and inefficient. Accelerated by President Franklin Delano Roosevelt during the New Deal, our government evaded the separation of powers by concentrating all three powers - executive, legislative, and judicial - in federal agencies.

The Supreme Court can put a stop to this in at least three ways.

First, in this term’s Gundy case, the high court can once again enforce the Constitution’s separation of federal power among the three branches by resuscitating the nondelegation doctrine. Simply put, that doctrine holds that one branch of the federal government cannot delegate its power to another. Congress cannot authorize agencies to pass rules that legally bind the public in its stead.

Second, the court can kill the judicially created doctrine of requiring federal judges to defer to agency interpretations of ambiguous statutes and regulations. It is a court’s constitutional role to determine what the law means in a dispute before it, and it should do so without deferring to any party, particularly not a different branch of government.

The Supreme Court has the chance to end deference in the context of regulations in this term’s case of Kisor v. Wilkie.

Finally, the court can restore the constitutional fact that all of the executive power has been vested in the president. Therefore, to exercise that power and see that the laws are faithfully executed, the president must be able to oversee all who work under him.

Congress has sought to insulate some federal agencies from presidential oversight by making them independent of the president’s ability to remove their leaders or check their actions.

But this just creates a politically unaccountable, and potentially rogue, faction of the executive branch. That’s not what the Constitution allows.

The Supreme Court should overturn past cases, such as Morrison v. Olson and Humphrey’s Executor, which allowed federal prosecutors or agency commissioners to act free from White House control.

The Constitution, as written and understood when enacted, is our supreme law. The Supreme Court has long viewed its own pronouncements as on a par with our founding document.

The high court can restore judicial humility by following the Constitution’s original meaning, until the people choose to change it. And if the court begins this process of restoration in 2019, it will be a very good year for the republic.

"...Two-thirds of projections made by the fracking companies between 2014 and 2017 in America’s four hottest drilling regions appear to have been overly optimistic, according to the analysis of some 16,000 wells operated by 29 of the biggest producers in oil basins in Texas and North Dakota. Collectively, the companies that made projections are on track to pump nearly 10% less oil and gas than they forecast for those areas, according to the analysis of data from Rystad Energy AS, an energy consulting firm.That is the equivalent of almost one billion barrels of oil and gas over 30 years, worth more than $30 billion at current prices. Some companies are off track by more than 50% in certain regions...."
Bradley Olson, Rebecca Elliott and Christopher M. Matthews, "Fracking’s Secret Problem—Oil Wells Aren’t Producing as Much as Forecast,"Wall Street Journal, January 2, 2018, https://www.wsj.com/articles/frackings-secret-problemoil-wells-arent-producing-as-much-as-forecast-11546450162

Reviewed the Strain paper, in general he finds the "China Shock" hardened existing views among whites versus changing peoples views across the board. for example increase trade exposure increases the likelihood of an individual identifies as fundamentalist but doesn't make people more religious (table 1) no significant overall effect on views of African Americans (Table 3) however when they look at racial views in commuting zones that contained at least one county mentioned in the voting rights act (table 4) they find that the increase in imports"...significantly harden racial attitudes among whites..."Table 5 looking at the impact on views of immigrants finds the same phenomenon, whites in areas with a relatively low immigrant share had more negative attitudes towards immigrants then those living in areas with a higher immigrant population initially. same thing with guns, "...Overall, increases in import exposure are associated with increases in the likelihood a respondent owns a gun, and appear to harden attitudes against gun ownership in areas where few people own guns...."

Michael Strain and Stan Veuger, "Economic Shocks and Clinging," American Enterprise Institute, January 2019, https://www.aei.org/wp-content/uploads/2019/01/Economic_shocks_wp.pdf

".....We find that the sudden surge of import competition during this period did affect social attitudes in important and nuanced ways..... On balance, we interpret our findings as lending only very limited support to the hypothesis that the economic effects of globalization affect the social attitudes of whites towards immigrants, minorities, guns and religion in the aggregate. At the same time, the increase in trade with China seems to materially harden preexisting attitudes. Specifically, the stronger a sudden surge in import competition, the more likely whites are to embrace religious fundamentalism. It is in areas that have a history of racial antipathy that “the China shock” led whites to develop more strongly negative views towards African Americans. Commuting zones with low initial levels of immigration witness a rise in anti-immigrant sentiments following sudden and intense import competition. And gun ownership becomes both even less common and even less popular in areas where gun ownership was low to begin with....Appendix table A3, shows that a $1,000 increase in per worker import exposure is associated with a 4.1 percentage point increase in the probability a white respondent feels the United States should let in fewer immigrants, and a 6.3 percentage point increase in the probability a white respondent believes the United States should do more to exclude illegal immigrants. We find no significant effect on the probability a person believes that immigrants are not good for America, immigrants take jobs from native-born workers, or that the United States should let in fewer total immigrants.....Panel A shows that in commuting zones in the bottom quartile of immigrants as a share of total population in 1990, a $1,000 increase in per worker import exposure is associated with an 8.3 percent increase in the probability a white respondent believes that immigrants are not good for the United States, a 10.2 percent increase in the probability a respondent believes immigrants take jobs from native-born workers, an 8.2 percent increase in the likelihood a respondent feels the United States should let in fewer immigrants, and a 8.6 percent increase in the likelihood a respondent believes that the United States should do more to exclude undocumented immigrants. Similarly, from panel B we see that in commuting zones in the bottom decile of immigrants as a share of total population in 1990, a $1,000 increase in per worker import exposure is associated with a 8.1 percent increase in the probability a white respondent believes that immigrants are not good for the United States, a 6.3 percent increase in the probability a respondent believes immigrants take jobs from native-born workers, a 4.8 percent increase in the likelihood a respondent feels the United States should let in fewer immigrants, and a 6.9 percent increase in the likelihood a respondent believes that the United States should do more to exclude undocumented immigrants. Overall increases in import exposure appear to harden attitudes towards immigrants among white Americans, particularly in areas where the preexisting share of immigrants is low.....These results suggest a nuanced relationship between the economic disruption caused by globalization — specifically, a local labor market’s exposure to import penetration from the “China shock” — and social attitudes among whites. Increases in import exposure are associated with an increased probability that white Americans identify as fundamentalist, but appear to have no effect on whether a person views himself as religious or not. Exposure to imports from China has no discernable effect on gun ownership or disapproval of gun regulation overall, but it makes people in areas where guns are not popular to begin with even more skeptical of gun ownership. Among the general white population, an increase in import competition only marginally increases support for restrictions on immigration. However, in areas with small immigrant populations, it both increases support for more restrictive immigration policies and triggers more negative views of immigrants. A similar picture arises when we examine the relationship between a sudden surge in import competition and the racial attitudes of white Americans. While racial attitudes grow slightly more negative in general, in labor markets containing at least one country mentioned in the 1965 Voting Rights Act a sudden increase in the effects of globalization materially increases the probability white respondents report feeling African Americans are lazy, believing African Americans are generally unintelligent, and who believe that African Americans lack education. These results suggest economic disruption from increased competition from abroad may lead to a hardening of racial views in areas with a history of racial tension. Taken as a whole, the economic effects of globalization materially affect the social attitudes of whites towards immigrants, minorities, guns and religion. They do so by hardening existing views, as opposed to altering attitudes across the board. These results are, of course, ultimately derived from variation in import competition. The availability of cheaper goods and services facilitated by increases in foreign output and productivity raises the purchasing power of American consumers, and globalization increases demand for exports, along with labor demand in export-intensive firms and industries. This may well, through these channels, have the opposite effect on the social views we study here, which leaves the aggregate impact of increased globalization on said views in both specific areas and the country as a whole to be determined...."

Aswath updated his ERP # currently 5.96%

Aswath Damodaran, "January 2019 Data Update 1: A reminder that equities are risky, in case you forgot!,"Musing on Markets, January 2, 2019, http://pages.stern.nyu.edu/~adamodar/

new paper being presented tomorrow at the AEA meeting. starting in the mid 1980's high skilled workers started working longer hours, their increasing value of time raises the cost of commuting and they responded by moving to cities. while the change in value of time is an initial force behind gentrification the paper finds that the new amenities create a feedback loop that drives the process.

"...I estimate a spatial equilibrium model to show that the rising value of high-skilled workers’ time is an important driving force behind the gentrification of American central cities. I show that the increasing value of time raises the cost of commuting and exogenously increases the demand for central locations by high-skilled workers. While change in value of time is an initial force behind gentrification, its effect is substantially magnified by endogenous amenity improvement. The model implies that welfare inequality in the recent decades increases by more than the rise in earnings inequality if the forces behind gentrification are considered...In this paper,I show that the demand for shorter commute time by the high-skilled workers due to the rising value of time is an important exogenous force that pushes high-skilled workers into the central city neighborhoods.I further show that the inflow of high-skilled workers leads to an endogenous process of amenity change.In the endogenous process,both the levels of amenities and rents in the central cities increase in response to the inflow of the high-skilled urban "pioneers."While all workers dislike higher rents,high skilled workers value the improved amenities more than low-skilled workers do. As a result,more high-skilled workers sort into the central city neighborhoods while low-skilled workers sort out to the suburbs,which endogenously leads to further improvement in amenities in the central cities.I show that while the rising value of time among high-skilled workers is an important underlying driving force behind gentrification,the resulting endogenous amenity change greatly magnifies its direct effect.Finally,I find that the rising value of time, amenity and rent change lead to an increase in welfare gap larger than the increase in income gap between high-and low-skilled workers. To motivate my analysis,I document that the time period of gentrification coincides with a period in which working long hours became more prevalent among high-wage earners. Evidence.....suggests that,before 1980,low-wage workers tended to work longer hours than high-wage workers.However,since mid-1980,this pattern has reversed itself. In recent years,high-wage workers have been much more likely to work long hours than their low-wage counterparts.Moreover,I show that,since 1980,the growth of reported commute time is much slower among the workers in the top wage deciles than workers in lower wage deciles, suggesting some of the spatial relocation of high-skilled workers in to the central cities is likely attributed to their changing value of time and increasing desire for shorter commute time......exploit the fact that even within the same residential neighborhood, commute time can be dramatically different across different occupations. This is because jobs in different occupations are located differential across space. For example financial managers and medical doctors are both highly skilled workers.However financial jobs are very concentrated in lower end of Manhattan while doctors in New York City area can work in any number of locationsbecause clinics and hospitals are spread throughout the metropolitan area.I can therefore use the variation in expected commute time across occupations to identify the effect of commute cost on workers’valuation of neighborhoods,controlling for other neighborhood characteristics that are occupation-invariant.....Finally,using the estimated model,I evaluate the welfare impact of the spatial sorting on high- skilled and low-skilled workers.I find that the change in the value of time,rents,and amenities leads to an increase in welfare gap equivalent to 8.41 percentage point in the earnings gap,which is 33% larger than the increase in the actual earnings gap...."

Yichen Su, "The Rising Value of Time and the Origin of Urban Gentrification," American Economic Association, January 4, 2019, https://www.aeaweb.org/conference/2019/preliminary/699