WORKING PAPERS
Consumer Search and Firm Location: Theory and Evidence from the Garment Sector in Uganda [WB Blog Post]
Special mention of merit at EEA UniCredit Econ Job Market Best Paper Award 2022
This paper studies the role of consumer information frictions in driving firms' location choices within cities. Using newly collected data from garment firms and their customers, I document that customers searching in areas with a high-density of firms visit more businesses and find better matches. Based on this evidence, I develop a quantitative urban model in which agglomeration reduces consumers’ costs of acquiring information. When choosing location, firms trade off consumers' preferences for agglomeration, fiercer competition induced by spatial proximity, and lower production costs from production externalities. I estimate the model combining original data on prices, quality, production, and search. I find that information frictions lead to substantial agglomeration, playing a role that is quantitatively similar to that of widely studied production externalities. Simultaneously, the high search costs associated with these frictions significantly lower firm profitability by compressing demand. Counterfactual scenarios show that e-commerce induces firms to disperse and consumers to prefer high-quality businesses, while policies that discourage central clustering without addressing information frictions hurt high-quality firms by reducing their visibility and competitive advantage.
PUBLICATIONS
The Search for Good Jobs: Evidence from a Six-year Field Experiment in Uganda, with O. Bandiera, V. Bassi, R. Burgess, I. Rasul and M. Sulaiman, December 2022, forthcoming, Journal of Labor Economics [VoxDev Podcast, Ideas for India]
One third of the 420 million young people in Africa are unemployed. Understanding how youth search for jobs and what affects their ability to find good jobs is of paramount importance. We do so using a field experiment tracking young job seekers for six years in Uganda’s main cities. We examine how two standard labor market interventions impact their search for good jobs: vocational training, vocational training combined with matching youth to firms, and matching only. Training is offered in sectors with high quality firms. The matching intervention assigns workers for interviews with such firms. At baseline, unskilled youth are optimistic about their job prospects, especially over the job offer arrival rate from high quality firms. Relative to controls, those offered vocational training become even more optimistic, search more intensively and direct search towards high quality firms. However, youth additionally offered matching become discouraged because call back rates from firm owners are far lower than their prior. As a result, they search less intensively and direct their search towards lower quality firms. These divergent expectations and search behaviors have persistent impacts: vocational trainees without match offers achieve greater labor market success, largely because they end up employed at higher quality firms than youth additionally offered matching. Our analysis highlights the foundational but separate roles of skills and expectations in job search, how interventions cause youth to become optimistic or discouraged, and how this matters for long run sorting in the labor market.
Tackling Youth Unemployment: Evidence from a Labor Market Experiment in Uganda, with L. Alfonsi, O. Bandiera, V. Bassi, R. Burgess, I. Rasul and M. Sulaiman, Econometrica, (2020) 88(6): 2369-2414 [J-PAL summary, Microeconomic Insights column, Policy Presentation]
We design a labor market experiment to compare demand- and supply-side policies to tackle youth unemployment, a key issue in low-income countries. The experiment tracks 1700 workers and 1500 firms over four years to compare the effect of offering workers either vocational training (VT) or firm-provided training (FT) for six months in a common setting where youth unemployment is above 60%. Relative to control workers we find that averaged over three post-intervention years, FT and VT workers: (i) enjoy large and similar upticks in sector-specific skills, (ii) significantly improve their employment rates, and, (iii) experience marked improvements in an index of labor market outcomes. These averages, however, mask differences in dynamics: FT gains materialize quickly but fade over time, while VT gains emerge slowly but are long-lasting, leading VT worker employment and earning profiles to rise above those of FT workers. Estimating a job ladder model of worker search reveals the key reason for this: VT workers receive significantly higher rates of job offers when unemployed thus hastening their movement back into work. This likely stems from the fact that the skills of VT workers are certified and therefore can be demonstrated to potential employers. Tackling youth unemployment by skilling youth using vocational training pre-labor market entry, therefore appears to be more effective than incentivizing firms through wage subsidies to hire and train young labor market entrants.
work in progress
Skill-capital Complementarities and the Effectiveness of Firm Training Programs, with V. Bassi, I. Rasul, and O. A. Veroux
“The Nature of the Firm” revisited: Documenting Relational Contracts within and between Firms, with V. Minni
COVID-19, Firm Dynamics and Market Structure in Urban Uganda, with O. Bandiera, V. Bassi, R. Burgess, and I. Rasul [IGC Policy Brief, PEDL C-19 Note]