Essays on Inequality, Geography, and Trade

Abstract

This dissertation studies how trade and geography shape long-term changes in the distribution of income, focusing on the U.S. economy in recent decades. Chapter 1 studies the role of the spatial expansion of firms in the rise of U.S. wage Inequality. I first show that multi-region firms account for most of the increase in U.S. wage dispersion since the 1980s. I then develop a general equilibrium model of firms that expand their headquarters-branch networks, in which the output of headquarters is non-rival across space. The resulting wage distribution depends on the network of firm spatial activity, and inequality rises with firms' geographical scope. I estimate frictions to spatial expansion from the network of HQ-branch linkages, and show that their decline accounts for multiple trends in U.S. labor markets, including rising inequality between and within firms, and higher spatial segregation. Chapter 2, joint with Ernest Liu and Stephen Redding, develops a spatial equilibrium model that incorporates forward-looking migration and capital accumulation, and uses it to understand the decline in income convergence across U.S. states. We characterize the steady-state equilibrium; generalize existing dynamic exact-hat algebra techniques to incorporate investment; and linearize the model to provide an analytical characterization of the economy’s transition path. We show that the interaction between capital and labor dynamics plays a central role in explaining the observed decline in the rate of income convergence in the U.S., and the persistent and heterogeneous impact of local shocks. Chapter 3, joint with Juanma Castro-Vincenzi, studies the decline in the labor share of income in recent decades, and links it to trade in intermediate inputs. We show that the labor share is negatively related to the price of materials under conditions of imperfect competition and complementarity between materials and primary inputs. We provide causal evidence for this relationship and show that it aligns with aggregate trends in the U.S. economy. We extend our framework to a multi-country setting and demonstrate how shocks to global commodity markets yield heterogeneous changes in the labor share across countries.