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CFGE-14: Labor and Finance
Fewer and Less Skilled? Human Capital, Competition, and Entrepreneurial Success in Manufacturing
1George Washington University, United States of America; 2University of Maryland, United States of America
We use micro data on skill levels of establishments to examine the human capital of US manufacturing entrants and incumbent plants over the period 2005-2013. We find a large drop in the cognitive skill levels of the entrant work force over this period. This has serious long-term implications since initial cognitive skills at the establishment level predict future skills and growth rates. While there is a differential decline in entrant skills in industries exposed to Chinese imports, we also find that incumbents upgrade skill levels in exposed industries. High skilled incumbents grow faster than low skilled establishments in exposed industries. The evidence for entrants is weaker, suggesting that they are entering in niches appropriate to their skill sets. The economic effect of import competition on the differential in skills between entrants and incumbents is economically significant explaining between 17%-60% of the skill differential in 2011. Overall, we find that entrepreneurial firms and incumbents are acquiring different skill sets, leaving entrants more exposed to the risk of automation or offshoring.
Local Taxes and the Demand for Skilled Labor: Evidence From Job Postings
1Cornell University; 2Indiana University, United States of America; 3University of Notre Dame
We show how state personal income taxes influence firms' decisions to hire skilled workers. Using a novel, comprehensive dataset containing US firms' online job postings, we document a measurable, negative effect of personal taxes on the level of education and skill required by firms. This effect is mitigated by firms' financial strength and in states that account for a large fraction of firms' sales, but it is aggravated where firms do not rely on local input. Our findings point to a ``brain-drain" of states with high personal income taxes. This is one of the first pieces of evidence showing that state taxes affect the demand for human capital and the skills of workers in the local labor market.
Do Minimum Wage Increases Cause Financial Stress to Small Businesses? Evidence from 15 Million Establishments
Georgia Tech, United States of America
Do increases in federal minimum wage impact financial health of small businesses? Using inter-temporal variation in whether a state's minimum wage is bound by the federal minimum wage and credit-score data for approximately 15.2 million establishments for the period 1989-2013, we find that increases in federal minimum wage worsen the financial health of small businesses in the affected states. Small, young, labor-intensive, minimum-wage sensitive establishment located in bounded states and businesses located in competitive and low-income areas experience higher financial stress. Increases in minimum wage also lead to lower bank loans, a higher risk of loan default and higher exit rate for affected small businesses. We use various matching methods and fixed effects to control of unobservable differences in treatment and control groups. The evidence suggests that some small businesses are unable or unwilling to pass-through costs to customers immediately and consequently experience financial stress. Our results document the costs to the one-size-fits-all nationwide minimum wage and highlight how the increases in minimum wages can have an adverse effect on the financial health of small businesses.
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