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, , and Gordon H. Hanson, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,†American Economic Review, October 2013, 103 (6), 2121–68.
- , “Employment and Wages, Annual Averages 2001,†December 2018.
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- , “The Effect of Tax Incentives on U.S. Manufacturing: Evidence from State Accelerated Depreciation Policies,†February 2018. Mimeo.
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- , Steven M. Fazzari, and Andrew P. Meyer, “A New Approach to Estimating Production Function Parameters: The Elusive Capital–Labor Substitution Elasticity,†Journal of Business & Economic Statistics, 2011, 29 (4), 587–594.
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- – A list of the top and bottom ten counties with over 100,000 population in 2001 based on the percent of their employment coming from long duration industries is shown in Table G2.
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- – Table G1 describes the within sector variation in duration as well as shares of national employment from QCEW (2017) and capital stock from Bureau of Economic Analysis (2017). The final column shows total variation (coefficient of variation multiplied by employment weight) with the manufacturing variation normalized to be equal to one. – Table G3 shows additional county descriptive statistics associated with exposure to long duration, population, and local capital stock. • Robustness to Controls and FHS Estimator. We show the robustness of the county-level regressions of employment, compensation, compensation per worker, and equipment in a series of expanded results with different controls and different definitions of key variables. The results are robust to the inclusion or exclusion of the controls.
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Arulampalam, Wiji, Michael P. Devereux, and Giorgia Maffini, “The direct incidence of corporate income tax on wages,†European Economic Review, 2012, 56 (6), 1038 – 1054.
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Chodorow-Reich, Gabriel, “Geographic Cross-Sectional Fiscal Spending Multipliers: What Have We Learned?,†Technical Report, National Bureau of Economic Research 2017.
- Compensation per Worker Total payments made to workers in a geographic area and industrial grouping in a given year divided by employment. From QCEW (2017), this variable is created as total annual wages divided by annual avg emplvl.
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Criscuolo, Chiara, Ralf Martin, Henry Overman, and John Van Reenen, “The causal effects of an industrial policy,†Technical Report, National Bureau of Economic Research 2012.
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- Demographics County-level education outcomes including percent of population with college degrees and with less than a high school education as well as racial demographics percent white and black from the American Community Survey. Data compiled in SuaÃŒÂrez Serrato and Zidar (2017).
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Dix-Carneiro, Rafael and Brian K. Kovak, “Trade Liberalization and Regional Dynamics,†American Economic Review, October 2017, 107 (10), 2908–46.
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- Duration The present value of depreciation deductions for the average asset in which each industry invests from Zwick and Mahon (2017). Long Duration Exposure Share of employment in each county in industries in the top tercile of industries as ranked by duration of average investment. This variable is always normalized to the interquartile range (IQR).
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- E Effects of Bonus Depreciation on the Employment-toPopulation Ratio One potential mechanism behind the increase in employment is the geographic relocation of workers. In order to account for this factor, we estimate the effects of our shock on the employment-to-population ratio, as in Autor et al. (2013).
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Edgerton, Jesse, “Investment incentives and corporate tax asymmetries,†Journal of Public Economics, 2010, 94 (11-12), 936–952.
- Employemt Population Ratio Growth 1997 2000 2003 2006 2009 2012 Year Long Duration Exposure 95% CI Recession 30% Bonus 50% Bonus 100% Bonus Notes: Author’s calculations using data from QCEW and Zwick and Mahon (2017). This figure shows the annual coefficients from an event study around the implementation of bonus depreciation. The dependent variable is the change in in the Employment-to-Population ratio. The variable of interest is the percent of employment that is resides in long duration industries normalized to the interquartile range (IQR). This estimating equation for this figure matches that of Figure G4.
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- Employment Number of average workers listed in a geographic area and industrial grouping in a given year according to QCEW (2017), annual avg emplvl.
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- Equipment Current-Cost Net Capital Stock of Private Nonresidential Fixed Assets, Equipment at the subsector-national level from Bureau of Economic Analysis (2017). Subsector level capital is applied to counties based on subsector employment shares of national employment.
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- F Details on the use of the Freyaldenhoven et al. (2018) Estimator As we discuss in Section III.B and Appendix B, our measure of capital stock does not vary across subsectors in a given county. This prevents us from including subsector-by-year fixed effects when estimating the effects of bonus depreciation on capital accumulation using the specification in Equation 2. Moreover, when we estimate a model without subsector-by-year fixed effects, we find that counties that were more exposed to bonus depreciation experience relative patterns of decline prior to the implementation of the policy in 2002–see Figure F1A. The concern raised by these pre-trends is that there is a confounder ηct that could bias our results.
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- Figure 4: Estimates of the Capital-Labor Elasticity of Substitution A. For Years 2002-2005 B. For Years 2006-2010 -7.5 -5 -2.5 0 2.5 5 7.5 Δ (Kâ„ L) (%) -2-1.5-1 -.5 0 .5 1 1.5 2 Δ Ã (%) Marginal Effect 90% CI Binned Ventiles -7.5 -5 -2.5 0 2.5 5 7.5 Δ (Kâ„ L) (%) -2-1.5-1 -.5 0 .5 1 1.5 2 Δ Ã (%) Marginal Effect 90% CI Binned Ventiles Notes: Estimating equation: Notes: Estimating equation: \ ∆ Kcjt Lcjt = 0.586 (0.453) ∆ÃÂcjt + X0 cγ̂ + ̂st + ν̂jt \ ∆ Kcjt Lcjt = − 1.687 (0.828) ∆ÃÂcjt + X0 cγ̂ + ̂st + ν̂jt 1st-stage F-stat = 39.58, à p-value = 0.196. 1st-stage F-stat = 13.10, à p-value = 0.042. C. Year-by-year Estimates -1 -.5 0 .5 1 1.5 2 2.5 3
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- Figure D1F shows that adjusting our estimates on the effects of bonus depreciation on employment so that they have a time-consistent interpretation results in very similar effects. The largest change is that we observe a slightly larger effect in years 2006-2007.
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- Figure E1 plots the results of this analysis and shows that, similar to Figure 2, the effects of bonus depreciation on employment crest in 2006. This figure shows that, by 2006, a unit IQR increase in Exposure increases the employment-to-population ratio by 1 percentage point.
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- Figure G2: Exposure to Long Duration Industries in 2001, Raw 0.27 − 0.82 0.22 − 0.27 0.17 − 0.22 0.11 − 0.17 0.00 − 0.11 No data Notes: Author’s calculations using data from QCEW and Zwick and Mahon (2017). This figure shows the percent of employment in each county that comes from the top three deciles of employment-weighted industries by average duration of investment. Industries are defined by 4-digit NAICS codes. A version of this map normalized to standard deviations from state-level mean is shown in Figure 1.
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- Figure G7: Effect of Bonus Depreciation by Exposure to Long Duration Industries, Long Duration Cutoff Robustness -.06 -.03 0 .03 .06 .09 Percent Equipment Growth 1997 2000 2003 2006 2009 2012 Year Top Quarter Duration 95% CI Top 40% Duration 95% CI Recession 30% Bonus 50% Bonus 100% Bonus Notes: Author’s calculations using data from QCEW and Zwick and Mahon (2017). This figure shows the annual coefficients from an event study around the implementation of bonus depreciation. The dependent variable is Equipment Capital Stock. The variable of interest is the percent of employment that is resides in long duration industries normalized to the interquartile range (IQR). These regressions correspond to those displayed in Figure 2 with long duration industries defined at cutoffs other than the top tercile. Figure G8: Alternative Estimates of the Capital-Labor Elasticity of Substitution Year-by-year Estimates: Linear Trend -1 -.5 0 .5 1 1.5 2 2.5 3
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- G Additional Figures and Tables Figure G1: Percent of Long Duration Employment Derived from Each Sector 0 .1 .2 .3 .4 Percent of Long Duration Employment Wholesale trade Utilities Transportation and warehousing Retail trade Real estate and rental and leasing Professional, scientific, and technical services Other services, except government Mining Manufacturing Management of companies and enterprises Information Health care and social assistance Finance and insurance Educational services Construction Arts, entertainment, and recreation Agriculture, forestry, fishing, and hunting Administrative and waste management services Accommodation and food services Notes: Author’s calculations using data from QCEW and Zwick and Mahon (2017). This figure shows the percent of long duration employment coming from each sector as defined by 2-digit NAICS in 2001. Data are at the national level.
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- Intellectual Property Current-Cost Net Capital Stock of Private Nonresidential Fixed Assets, Intellectual Property Products at the subsector-national level from Bureau of Economic Analysis (2017). Subsector level capital is applied to counties based on subsector employment shares of national employment.
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- IP Stock Total intellectual property products in 2001 from Bureau of Economic Analysis (2017) allocated to counties using employment shares at the subsector level.
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- Other Control Variables DPAD Share of employment in each county in industries in the top tercile of industries as ranked by Qualified Production Activities Income as a percent of sales in 2005 derived from data compiled in Ohrn (2018a).
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- Other Outcome Variables Compensation Total payments made to workers in a geographic area and industrial grouping in a given year according to QCEW (2017), total annual wages.
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- Overall, the pattern of losses and Section 179 expensing do not play a material role in explaining the dynamics of how bonus depreciation affects the labor market. For this reason, we present the unadjusted results in the paper. This result is also consistent with results in Zwick and Mahon (2017) that show that business investment was similarly responsive to bonus depreciation in the early and latter years of our sample. Figure D1: Adjusting for Losses and Section 179 in the Employment Effects of Bonus Depreciation A. Bonus Depreciation Rate b B. Fraction of 179-Eligible Qualified Investment 0 .2 .4 .6 .8 1
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- Table G5: Local Labor Market Effects of Bonus Depreciation (1997-2000, No PreTrends) (1) (2) (3) (4) Employment Growth Long Duration Exposure-0.005∗ -0.002-0.003 0.001 (0.003) (0.002) (0.002) (0.003) Compensation Growth Long Duration Exposure-0.004-0.002-0.002-0.000 (0.003) (0.002) (0.002) (0.003) Compensation Per Worker Growth Long Duration Exposure-0.000-0.001 0.000-0.002 (0.001) (0.001) (0.001) (0.001) Equipment Stock Growth Long Duration Exposure-0.004∗ -0.002-0.003-0.002 (0.003) (0.002) (0.002) (0.002) Year-by-Subsector Fixed Effects†Yes Yes Yes Yes Year-by-State Fixed Effects Yes Yes Yes Winsorized Weights Yes Dropping Small County-Subsectors Yes Notes: This table shows the estimates from a pooled regression of equation 2 where β is not allowed to vary by year and all controls discussed in Appendix A are included. The sample for this table includes only years 1997 to 2000 to test the parallel trends assumption in the preperiod, which we fail to reject.
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- That is, the true data generating process may be as follows: ∆Kct = α + 2012 X y=1997 βy Exposurec × 1(t = y) + δηct + st + ct. (F.1) Our estimates of the effects of bonus depreciation could then be biased if δ 6= 0 and ηct is correlated with Exposure.
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- The dependent variable is the percent change in employment relative to 2001. The variable of interest is the percent of employment that is derived from long duration industries with more than five times more structures and intellectual property than equipment normalized to the interquartile range (IQR). Standard errors clustered at the state and sector levels are shown in parentheses. ∗ p < 0.1, ∗∗ p < 0.05, ∗∗∗ p < 0.01.
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- The equation we aim to estimate is then: ∆Kct = α + 2012 X y=1997 βy Exposurec × 1(t = y) + λxct + st + ct. (F.2) Note, however, that even though xct is related to ηct, controlling for xct in Equation F.2 would only correct for the confounder if xct = δηct; that is, if the effects of ηct on xct and ∆Kct are exactly parallel.
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- The outcomes are employment in the first row, compensation in the second, compensation per worker in the third, and equipment stock in the final row. Column (1) shows estimates with subsector-by-year fixed effects while column (2), the main specification, adds state-by-year fixed effects. The following two columns show robustness of the results to winsorizing the weights at the 5% level and to dropping county-subsectors with less than 1,000 workers in 2001. Standard errors are clustered at the county level. The primary specifications for the post-implementation effects are shown in Table 1. ∗ p < 0.05, ∗∗ p < 0.01, ∗∗∗ p < 0.001. †The regressions of equipment capital stock combine all subsectors together, so the subsector-by-year fixed effects are only year fixed effects for the equipment outcome.
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- To deal with this concern, Freyaldenhoven et al. (2018) propose an estimator to correct for the role of the confound ηct. The estimator makes use of a covariate xct that is related to the confound ηct but that is not affected by Exposure. The second requirement for this covariate is that the dynamic behavior between xct and Exposure mirrors that between ηct and Exposure. As we show in Figure F1B, the stock of intellectual property has a similar pre-trend with respect to Exposure as the stock of equipment capital. Moreover, since bonus depreciation only applies to capital equipment, the stock of intellectual property should not be affected by bonus depreciation. We therefore use the stock of intellectual property in the role of the auxiliary covariate xct.
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- Trade (China) County-level exposure to trade from China from Autor et al. (2016).
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- Trade (NAFTA) County-level exposure to trade related to NAFTA from Hakobyan and McLaren (2016).
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- We assume the return on capital r is 7%. We derive county-level measures of the economic depreciation rate δct based on BEA investment data, county-industry mixes from QCEW, and the law of motion for capital. Corporate tax rates, Äst, vary at the state level and are taken from SuaÃŒÂrez Serrato and Zidar (2017). We compute a county-level average of the discounted present value of depreciation deductions, zct, using data from Zwick and Mahon (2017) and the QCEW. Finally, state investment tax credits, Invst are taken from Chirinko and Wilson (2008). Since the adoption of bonus depreciation persistently decreased the cost of investment, we calculate the relevant user cost uccct as the cumulative average ]
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Yagan, Danny, “Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut,†The American Economic Review, 2015, 105 (12), 3531–3563.
Zhang, Lei, Yuyu Chen, and Zongyan He, “The effect of investment tax incentives: evidence from China’s value-added tax reform,†International Tax and Public Finance, 2018, 25 (4), 913–945.
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Zwick, Eric and James Mahon, “Tax Policy and Heterogeneous Investment Behavior,†American Economic Review, January 2017, 107 (1), 217–48.