Multi-Market Service Firms
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Transcript of Multi-Market Service Firms
Multi-Market Service Firms
Antoine GervaisUniversity of Notre Dame
J. Bradford JensenMcDonough School of Business, Georgetown University
Peterson Institute for International EconomicsNBER
2
Background / Context
• We have learned a great deal over the past 15 years regarding the role of firms in international trade
• New areas of research being opened up by incorporation of transaction level trade data to economic census data
• One shortcoming is the vast majority of the research to date has focused on goods
• I have devoted a significant share of my time over the past 5 years to examining the prospects of analyzing trade in services
Composition of U.S. Employment, 2007
Source: 2007 Economic Census and Census of Governments
Mining0%
Utilities0%
Manufacturing10%
Construction5%
Transportation and warehousing
3%
Wholesale trade5%
Retail trade12%
Business Services25%
Personal Services25%
Federal Government2%
State and Local Government12%
Business and Personal Services
NAICS Code SectorEmployment
2007
Share of Total Employment
2007
Employment Growth
1997-200721 Mining 703,129 0.5% 38%22 Utilities 632,432 0.5% -10%23 Construction 7,399,047 5.5% 31%31-33 Manufacturing 13,333,390 9.9% -21%42 Wholesale trade 6,295,109 4.7% 9%44-45 Retail trade 15,610,710 11.5% 12%48-49 Transportation and warehousing 4,435,760 3.3% 52%51-56 Business Services 33,430,809 24.7% 29%
51 Information 3,428,262 2.5% 12%52 Finance and insurance 6,562,546 4.9% 12%53 Real estate and rental and leasing 2,249,353 1.7% 32%54 Professional, scientific, and technical services 8,121,171 6.0% 51%55 Management of companies and enterprises 2,915,644 2.2% 11%56 Administrative and support and waste remediation services 10,153,833 7.5% 38%
61-81 Personal Services 34,595,857 25.6% 23%61 Educational services 562,210 0.4% 75%62 Health care and social assistance 16,859,513 12.5% 24%71 Arts, entertainment, and recreation 2,070,524 1.5% 30%72 Accommodation and food services 11,587,814 8.6% 23%81 Other services (except public administration) 3,515,796 2.6% 8%
Federal Government 2,462,000 1.8% --State and Local Government 16,400,000 12.1% --
Source: U.S. Census Bureau
How are services traded?
• Modes of service trade:
• Mode 1 – Cross-border provision, e.g. software produced in one region and shipped via internet to another region
• Mode 2 – Consumption abroad, e.g. consumer travels to resort to consume service
• Mode 3 – Commercial presence in foreign region, e.g. restaurant opens local branch to serve foreign demand
• Mode 4 – Temporary movement of natural persons, e.g. consultant travels to customer to deliver services
How are services traded?
• Modes of service trade:
• Mode 1 – Cross-border provision, e.g. software produced in one region and shipped via internet to another region
• Mode 2 – Consumption abroad, e.g. consumer travels to resort to consume service
• Mode 3 – Commercial presence in foreign region, e.g. restaurant opens local branch to serve foreign demand
• Mode 4 – Temporary movement of natural persons, e.g. consultant travels to customer to deliver services
2006
Travel 2 ……………………………………………………………………...
Passenger fares 3 ………………………………………………………….
Other transportation……………………………………………………..
Royalties and license fees………………………………………………
Other private services 4 15…………………………………………………..
Education 5………………………………………………………………..
Financial services 16……………………………………………………….
Insurance services 6 ……………………………………………………
Telecommunications 7………………………………………………….
Business, professional, and technical services 16…………………
Computer and information services 8 16……………………………….
Management and consulting services 9………………………………
Research and development and testing services 9………………..
Operational leasing 16………………………………………………………
Other business, professional, and technical services 10 16…………..
Accounting, auditing, and bookkeeping services………………..
Advertising……………………………………………………………
Architectural, engineering, and other technical services………..
Construction ………………………………………………………….
Industrial engineering……………………………………………………
Installation, maintenance, and repair of equipment…………………
Legal services……………………………………………………………
Medical services 11………………………………………………………….
Mining 12……………………………………………………………………..
Sports and performing arts……………………………………………..
Trade-related services 13………………………………………………..
Training services…………………………………………………………
Other 14…………...
Other services…………………………………………………………...
Film and television tape rentals……………………………………….
Other…………………………………………………………………………
Data Available
2001
Travel 2 ……………………………………………………………………...
Passenger fares 3 ………………………………………………………….
Other transportation……………………………………………………..
Royalties and license fees………………………………………………
Other private services 4 15…………………………………………………..
Education 5………………………………………………………………..
Financial services 16……………………………………………………….
Insurance services 6 ……………………………………………………
Telecommunications 7………………………………………………….
Business, professional, and technical services 16…………………
Computer and information services 8 16……………………………….
Management and consulting services 9………………………………
Research and development and testing services 9………………..
Operational leasing 16………………………………………………………
Other business, professional, and technical services 10 16…………..
Medical services 11………………………………………………………….
Other services…………………………………………………………...
Film and television tape rentals……………………………………….
Other…………………………………………………………………………
Data Available
1992
Travel 2 ……………………………………………………………………...
Passenger fares 3 ………………………………………………………….
Other transportation……………………………………………………..
Royalties and license fees………………………………………………
Other private services 4 15…………………………………………………..
Education 5………………………………………………………………..
Insurance services 6 ……………………………………………………
Telecommunications 7………………………………………………….
Operational leasing 16………………………………………………………
Medical services 11………………………………………………………….
Mining 12……………………………………………………………………..
Other services…………………………………………………………...
Film and television tape rentals……………………………………….
Other…………………………………………………………………………
1997
Travel 2 ……………………………………………………………………...
Passenger fares 3 ………………………………………………………….
Other transportation……………………………………………………..
Royalties and license fees………………………………………………
Other private services 4 15…………………………………………………..
Education 5………………………………………………………………..
Financial services 16……………………………………………………….
Insurance services 6 ……………………………………………………
Telecommunications 7………………………………………………….
Business, professional, and technical services 16…………………
Computer and information services 8 16……………………………….
Operational leasing 16………………………………………………………
Other business, professional, and technical services 10 16…………..
Medical services 11………………………………………………………….
Other services…………………………………………………………...
Film and television tape rentals……………………………………….
Other…………………………………………………………………………
Data Available
1992
Travel 2 ……………………………………………………………………...
Passenger fares 3 ………………………………………………………….
Other transportation……………………………………………………..
Royalties and license fees………………………………………………
Other private services 4 15…………………………………………………..
Education 5………………………………………………………………..
Insurance services 6 ……………………………………………………
Telecommunications 7………………………………………………….
Operational leasing 16………………………………………………………
Medical services 11………………………………………………………….
Mining 12……………………………………………………………………..
Other services…………………………………………………………...
Film and television tape rentals……………………………………….
Other…………………………………………………………………………
Data Available
Previous Work on Trade in Services
• Jensen and Kletzer (2006), Jensen (forthcoming), and Gervais and Jensen (on-going)
• Exploit mismatch of production and consumption to identify activities that can be provided at a distance
• Quick summary of findings:– A significant share of employment is in tradable service
activities– These activities are qualitatively different from non-tradable
services and manufacturing– The empirical results have important implications for US
comparative advantage and US trade policy
How are services traded?
• Modes of service trade:
• Mode 1 – Cross-border provision, e.g. software produced in one region and shipped via internet to another region
• Mode 2 – Consumption abroad, e.g. consumer travels to resort to consume service
• Mode 3 – Commercial presence in foreign region, e.g. restaurant opens local branch to serve foreign demand
• Mode 4 – Temporary movement of natural persons, e.g. consultant travels to customer to deliver services
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Headquarters and FDI
• “Classic” question
• Early focus on “horizontal” FDI, but literature moves on to “vertical” FDI– Caves (1971), Hymer (1976), and Dunning (1977)– Helpman (1984), Markusen (1984)– Antras (2003)
• Limited empirical analysis– Brainard (1993), Yeaple (2003)– Hanson, Mataloni, Slaughter (2005)– Nunn and Trefler (2008), Bernard, Jensen, Redding, and Schott (2010)– Desai, Foley, and Hines (2009)
Overview
• Consider the relationship between headquarters activity and multi-market operation (FDI) in the service sector
• Develop a model of market seeking entry in the face of prohibitive trade costs for final output– Firms choose level of headquarters activity and number of
markets
• Focus on non-tradables, but interested in potential for trade policy to affect employment in U.S. via headquarters supporting FDI– Identify industries where FDI is likely– Investigate relationship between FDI and headquarters – Hope ultimately (not here today) to estimate domestic
headquarters employment impact of increased FDI
Empirical Approach
• International FDI data shortcomings
• Use detailed microdata on the wholesale, retail, and service sectors collected by the U.S. Census Bureau– Domestic data, but mechanism similar to FDI
• Investigate:– Prevalence of/relationship between multi-market and
headquarters activity– Changes over time– Industry and firm level relationships
Preview of Findings
• Significant variation in headquarters and multi-market activity across industries and firms within industries
• Positive correlation between headquarters activity and multi-market firms across industries
• Positive correlation between industry characteristics and increases in number of markets firms operate in
• Firm HQ activity positively associated with firms’ number of markets and increases in firms’ number of markets
Data
• Economic Census data for 1987, 1997– Census of Services– Census of Wholesale– Census of Retail
• Headquarters Activities – Census of Auxiliaries 1987
Data Issues
• Census of Manufactures– Firm ownership– Location– Industry classification– Employment– Payroll– Revenue– Non-production/
production– Capital stock by type– Materials, energy inputs– Periodic information on
other inputs (technology…)
• Census of Services– Firm ownership– Location– Industry classification– Employment– Payroll– Revenue
Data Issues
• Industry Classification changes – Restricts us to 1987 to 1997 (both available on 1987 SIC
basis)
• Finance, Insurance, and Real Estate sector and Telecommunications and Broadcasting industries not included in 1987 Economic Census
Measures
• Measures of number of markets:– Number of BEA labor market areas (183 regions)– Number of establishments
• HQ activity measures– Total firm headquarters activity allocated across industries based on
an industry’s share of firm revenue– Headquarters dummy– Other inputs = Revenue – Payroll
• Very large number of very small service producers– To construct industry level measures and to characterize firm
characteristics, use revenue weighted means– Cross-industry and regression results are un-weighted
Prevalence of Multi-Market Firms
1 2-5 6-50 51-100 100+Manufacturing 34 33 32 0 0Services 51 13 25 5 6
1 2-5 6-10 51-100 100+Manufacturing 31 32 33 4 0Services 45 14 21 6 14
Note: The table shows the share of sector output accounted for by firms that operate in 1 market, 2-5 markets, etc.
Prevalence of Multi-Market FirmsPercent of Sector Output by Firms' Number of Markets
Number of Regions
Number of Establishments
Variation across Industries
Mean Std dev Max. HQ Intensity Payroll
Weighted Mean Number of Regions 11 14 94 0.69624 0.46812<.0001 <.0001
Weighted Mean Number of Estabs 45 119 1,061 0.52265 0.49979<.0001 <.0001
HQ Payroll Intensity 0.04 0.04 0.16HQ Payroll Level ($000) 113,197 305,501 3,293,246
Number of Industries = 269
Correlation
Number of Markets and Headquarters ActivityIndustry Level Measures 1987
Note: Table shows the mean, standard deviation, and maximum of industry-level measures. The weighted mean measures are constructed by taking the revenue-weighted mean across firms within an industry. The mean and standard deviation across industries are unweighted.
Change over Time
• Take information and communications technology changes as a “general purpose technology”
• Decrease in cost of opening/managing affiliates
• Related literature on growth of national retail chains– Basker (2005) – Foster, Haltiwanger, and Krizan (2006)– Jarmin, Klimek, and Miranda (2009)
Variation across Industries
Number of Regions Quartile: 1 2 3 4HQ Payroll Intensity 0.013 0.033 0.039 0.073
(.016) (.028) (.022) (.04)HQ Payroll Level 19,514 56,355 92,777 285,542
(49,778) (97,166) (123,832) (555,689)Number of Regions 1987 1.3 3.1 8 30
(.279) (.838) (2) (17)Number of Regions 1997 3.1 7.2 13 38
(8) (8) (13) (27)
Number of Estabs Quartile: 1 2 3 4HQ Payroll Intensity 0.014 0.031 0.041 0.072
(.019) (.024) (.027) (.039)HQ Payroll Level 12,612 65,002 101,885 274,792
(20,663) (101,356) (128,213) (558,940)Number of Estabs 1987 1.8 5.3 18 157
(.586) (1.81) (7) (201)Number of Estabs 1997 4.1 34.2 37 278
(7) (150) (44) (356)
Number of Regions Quartiles
Number of Establishments Quartiles
Industry Descriptive Statistics by Number of Markets Quartiles
Changes over Time in Number of Markets
Regions Establishments
Number of Regions 1987 0.241 0.430<.0001 <.0001
Number of Estabs 1987 0.260 0.494<.0001 <.0001
HQ Payroll Intensity 1987 0.259 0.313<.0001 <.0001
log(HQ Payroll) 1987 0.130 0.1930.0329 0.0015
Change in Number of 1987-1997
Correlation of Industry Level Measures
Model
• Develop a simple general equilibrium model of the decision to enter new markets.
• We assume that the final “output” of the firm is nontradable – to serve additional consumers firms need to enter new markets.
• We assume that firms can make investments in an asset that is non-rivalrous within the firm.
• Firms endogenously choose the optimal level of headquarters services and the number of locations in which to operate, conditional on demand characteristics and cost of managing multiple establishments.
Model: Preferences and Demand
Model: Technology and Production Costs
Model: Key Relationship
Firm Characteristics
Number of Regions Quartile: 1 2 3 4Firm Sales ($000) 72,419 1,010,891 827,861 7,988,173Firm Employment 260 1,877 2,013 22,489Firm HQ Payroll Intensity 0.01 0.05 0.07 0.11Firm HQ Indicator 0.06 0.39 0.51 0.74log(Other Inputs) 8.72 11.18 11.27 13.39Multi-Market Indicator 0.12 0.39 0.62 0.78Number of Regions 1.54 4.15 12.77 40.67
N 347,164 95,264 195,400 209,076
Number of Estabs Quartile: 1 2 3 4Firm Sales ($000) 84,619 872,065 1,093,796 8,531,120Firm Employment 187 1,692 2,330 24,314Firm HQ Payroll Intensity 0.01 0.04 0.07 0.12Firm HQ Indicator 0.06 0.37 0.55 0.73log(Other Inputs) 9.15 10.80 11.68 13.30Multi-Estab Indicator 0.23 0.47 0.72 0.83Number of Estabs 2.20 6.74 24.74 329.59
N 245,065 176,587 175,798 249,454
Continuers: Firm Means by Industry Number of Markets QuartilesRevenue-Weighted Mean Firm Characteristics, 1987
Firms Add and Drop Markets
Number of Regions Quartile: 1 2 3 4Add Region Indicator 0.08 0.27 0.51 0.64Drop Region Indicator 0.06 0.33 0.52 0.63
N 347,164 95,264 195,400 209,076
Number of Estabs Quartile: 1 2 3 4Add Estab Indicator 0.16 0.40 0.65 0.79Drop Estab Indicator 0.17 0.44 0.66 0.80
N 245,065 176,587 175,798 249,454
Prevalence of Firm Market Adds and DropsRevenue-Weighted Means by Industry Quartile
Firm Number of Regions
Dependent Variable: log(Firm Number Regions)
Firm HQ Dummy 1987 0.761 *** 0.343 *** 0.738 *** 0.349 ***(.002) (.004) (.002) (.004)
x log(Ind. Regions) 0.171 *** 0.158 ***(.002) (.002)
log(Firm Sales 1987) 0.035 *** 0.010 *** 0.044 *** 0.013 ***(.000) (.000) (.000) (.000)
x log(Ind. Regions) 0.015 *** 0.018 ***(.000) (.000)
log(Industry Sales 1987) -0.010 *** -0.010 ***(.000) (.000)
log(Industry Number of Regions) 0.007 *** -0.079 ***(.000) (.001)
Intercept -0.032 *** 0.111 ***(.002) (.003)
SIC Fixed Effects No No Yes YesN= 846,904 846,904 846,904 846,904 R-squared 0.260 0.286 0.278 0.302
Firm Level Regressions
Firm Number of Estabs
Dependent Variable: log(Firm Number Estabs)
Firm HQ Dummy 1987 1.383 *** 0.634 *** 1.315 *** 0.622 ***(.003) (.007) (.003) (.006)
x log(Ind. Estabs) 0.192 *** 0.177 ***(.002) (.002)
log(Firm Sales 1987) 0.074 *** 0.023 *** 0.101 *** 0.037 ***(.000) (.000) (.000) (.000)
x log(Ind. Estabs) 0.020 *** 0.023 ***(.000) (.000)
log(Industry Sales 1987) -0.025 *** -0.026 ***(.000) (.000)
log(Industry Number of Estabs) 0.016 *** -0.103 ***(.000) (.001)
Intercept 0.001 0.320 ***(.004) (.004)
SIC Fixed Effects No No Yes YesN= 846,904 846,904 846,904 846,904 R-squared 0.339 0.378 0.371 0.406
Firm Level Regressions
Change in Number of Regions
Dependent Variable: Change in Firm Number of Regions
Firm HQ Dummy 1987 0.738 *** 0.458 *** 0.704 *** 0.539 ***(.016) (.038) (.016) (.038)
x log(Ind. Regions) 0.120 *** 0.068 ***(.015) (.016)
log(Firm Sales 1987) 0.020 *** 0.012 *** 0.026 *** 0.016 ***(.001) (.002) (.001) (.003)
x log(Ind. Regions) 0.004 *** 0.006 ***(.001) (.001)
log(Industry Sales 1987) -0.014 *** -0.014 ***(.001) (.001)
log(Industry Number of Regions) 0.010 *** -0.017 ***(.001) (.006)
Intercept 0.122 *** 0.170 ***(.020) (.022)
SIC Fixed Effects No No Yes YesN= 846,904 846,904 846,904 846,904 R-squared 0.004 0.004 0.007 0.007
Firm Level Regressions
Change in Number of Estabs
Dependent Variable: Change in Firm Number of Estabs
Firm HQ Dummy 1987 5.408 *** 1.794 *** 5.166 *** 2.234 ***(.124) (.278) (.126) (.282)
x log(Ind. Estabs) 0.951 *** 0.757 ***(.071) (.072)
log(Firm Sales 1987) 0.140 *** -0.037 ** 0.210 *** -0.031(.009) (.016) (.011) (.020)
x log(Ind. Estabs) 0.070 *** 0.088 ***(.005) (.006)
log(Industry Sales 1987) -0.079 *** -0.085 ***(.010) (.010)
log(Industry Number of Estabs) 0.041 *** -0.378 ***(.007) (.030)
Intercept 0.473 *** 1.614 ***(.160) (.177)
SIC Fixed EffectsN= 846,904 846,904 846,904 846,904 R-squared 0.003 0.004 0.005 0.005
Firm Level Regressions
Change in Log(Number of Regions)
Dependent Variable: Change in log(Number of Regions)
Firm HQ Dummy 1987 0.018 *** 0.013 *** 0.016 *** 0.013 ***(.001) (.003) (.001) (.003)
x log(Ind. Regions) 0.002 0.001(.001) (.001)
log(Firm Sales 1987) 0.001 *** 0.001 *** 0.001 *** 0.001 ***(.000) (.000) (.000) (.000)
x log(Ind. Regions) 0.000 * 0.000(.000) (.000)
log(Industry Sales 1987) -0.001 *** -0.001 ***(.000) (.000)
log(Industry Number of Regions) 0.001 *** 0.000(.000) (.001)
Intercept 0.005 *** 0.006 ***(.002) (.002)
SIC Fixed Effects No No Yes YesN= 846,904 846,904 846,904 846,904 R-squared 0.001 0.001 0.003 0.003
Firm Level Regressions
Change in log(Number of Estabs)
Dependent Variable: Change in log(Firm Number of Estabs)
Firm HQ Dummy 1987 0.023 *** 0.059 *** 0.020 *** 0.054 ***(.002) (.004) (.002) (.005)
x log(Ind. Estabs) -0.010 *** -0.009 ***(.001) (.001)
log(Firm Sales 1987) -0.002 *** -0.001 *** -0.003 *** -0.003 ***(.000) (.000) (.000) (.000)
x log(Ind. Estabs) 0.000 *** 0.000 *(.000) (.000)
log(Industry Sales 1987) 0.001 *** 0.001 ***(.000) (.000)
log(Industry Number of Estabs) 0.000 ** 0.002 ***(.000) (.000)
Intercept -0.006 ** -0.013 ***(.003) (.003)
SIC Fixed Effects No No Yes YesN= 846,904 846,904 846,904 846,904 R-squared 0.000 0.001 0.004 0.004
Firm Level Regressions
Alternative HQ Measure: Other Inputs
Dep. Var.: log(Number of Regions) Change in Number of Regions Change in log(Number of Regions)log(Firm Other Inputs 1987) 0.033 *** 0.024 *** 0.000
(.001) (.006) (.001)log(Firm Sales 1987) 0.029 *** 0.019 *** 0.001 **
(.001) (.006) (.001)SIC Fixed Effects Yes Yes YesN= 846,904 846,904 846,904 R-squared 0.148 0.004 0.003
Robustness: Other Inputs Measure
Alternative HQ Measure: Other Inputs
Dep. Var.: log(Number of Estabs) Change in Number of Estabs Change in log(Number of Estabs)log(Firm Other Inputs 1987) 0.049 *** 0.207 *** 0.000
(.001) (.047) (.001)log(Firm Sales 1987) 0.084 *** 0.128 *** -0.003 ***
(.001) (.047) (.001)SIC Fixed Effects Yes Yes YesN= 846,904 846,904 846,904 R-squared 0.227 0.003 0.004
Robustness: Other Inputs Measure
Preliminary Conclusions
• Significant variation in headquarters and multi-market activity across industries and firms within industries
• Positive correlation between headquarters activity and multi-market firms across industries and increases in number of markets
• Firm HQ activity positively associated with firms’ number of markets and increases in firms’ number of markets
• Approach holds promise for investigating effect of increased liberalization of FDI on US employment
Thank You
Geographic Concentration of Industries
Geographic Concentration of Industries
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0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0 100 200 300 400 500 600 700 800 900 1000
NAICS Industry
Gin
i Co
eff
icie
nt
Ag Mining Utilities Construction Manufacturing Wholesale Retail Transportation Services Public Admin
Mfg EMP – 86% T
Prof Svc EMP –70% T
Ed/Health EMP –98% N-TOth Svc EMP –80% N-T
Ag/Min EMP –100% T
Source: Jensen and Kletzer (2006)
Tradable Services are Different
Non-tradable Industry Tradable IndustryNumber of Workers 2,235,432 12,994,490Average Earnings $44,014 $49,952Share with B.A. 16% 24%Share with Advanced Degree 3% 7%Share in Tradable Occupations 26% 34%
Non-tradable Industry Tradable IndustryNumber of Workers 8,038,246 18,430,199Average Earnings $42,226 $66,454Share with B.A. 29% 50%Share with Advanced Degree 7% 17%Share in Tradable Occupations 31% 60%Source: Author's calculations, 2007 American Community Survey
Manufacturing (NAICS 30s)
Professional Services (NAICS 50s)
Worker Characteristics for Select I ndustries
Source: Author’s calculations, 2007 American Community Survey
Potential Labor Market Impact
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 110,000 120,000 130,000
Industry Average Wage
Sh
are
of
Sec
tor
Em
plo
ymen
tTradable Manufacturing (NAICS 30s) Tradable Business Services (NAICS 50s)
Source: Author’s calculation using 2007 County Business Patterns data.