ONLINE APPENDIX FOR HOUSING BOOMS, MANUFACTURING DECLINE,

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1 ONLINE APPENDIX FOR HOUSING BOOS, ANUFACTURING DECLINE, AND LABOR ARKET OUTCOES Kerwin Kofi Charle Erik Hurt atthew J. Notowidigdo July 2017 A. Background on Propertie of Frechet Ditribution Thi ection provide a brief review of propertie of Frechet ditribution that are ueful for proving main propoition in the main text. Definition: A cumulative ditribution function, F, i a ingle-variable Frechet(θ,, m) ditribution if θ x m F( x) = exp where θ,, and m are hape, cale, and location parameter, repectively. Definition: The gamma function Γ( ) i defined a Γ ( ) = n 1 x n x e dx 0 Remark: If X i ditributed a Frechet(θ, 1, 0), then Γ(1 1 / θ) θ > 1 EX [ ] = 0< θ 1 Definition: A cumulative ditribution function F i a multi-variate Frechet(N, θ) ditribution (with cale 1 and location 0) if N F( x1, x2,..., xn) = exp x θ i i= 1 Remark: A multi-variate Frechet i the joint ditribution of N independent draw from inglevariable Frechet with ame hape parameter. Remark: If {X 1, X 2,, X N } are N independent draw from a Frechet(θ,, m) and X* i the max of { X 1, X 2,, X N }, then X* i ditributed a Frechet(θ, N 1/θ, m). OA-1

2 B. Reult for General odel with ultiple Sector and Group (G > 1 and > 1) B.1. Probability of Chooing Sector The probability of individual i in group g chooing ector i given by P = Pr[log( we z ) log( w e z ) m] ig i g m im gm wz g = Pr ei eim m wz m gm Uing property of Frechet ditribution above, we can derive following expreion: θ ( wz g ) Pg = θ ( wz ) Thi i the ame formula for all ector including non-work ector ( = 0). B.2. Conditional expected value of efficiency term The expected value of efficiency term given wage i given by m= 0 1/ θ θ ( wz m gm) m= 0 [ ig chooing ] = Γ(1 1/ θ ) wz g Ee B.3. Labor Supply Total labor upply into ector i given by the following: H upply G m = H g= 1 The labor upply for ector from group g depend on hare of unit meaure of individual in group g multiplied by probability ector i elected among the individual in that group and multipled by the (conditional) expected value of efficiency term for thi group chooing ector in group g). Thi i given by the following expreion: upply H = q P Ee [ chooing ] g g g ig gm upply g B.4. Labor Demand The aggregate production function i given by following CES function: 1 1 YH ( 1, H2,..., H) = ( AH m m) m= 1 The total efficiency unit of labor upplied to ector i given by OA-2

3 H m G = H By taking firt-order condition in each ector, we have following equation for labor demand: H demand m g= 1 gm 1 A = Y w Impoing zero profit condition give following expreion relating wage and (exogenou) ector-pecific hifter: A m 1 = m= 1 wm Normalizing w 0 = 1, we have equilibrium wage given by following expreion, which are derived by etting labor demand equal to labor upply for each ector = 1,,: 1 1 G (1/ θ ) 1 θ 1 θ A (1 1 / θ ) qg ( wz g ) ( wm zgm) Y g= 1 m= 0 w Γ = Propoition: The ratio of average wage acro ector i not affected by ector-pecific hifter, meaning that average wage in all ector decline by the ame proportion for each demographic group in repone to any combination of ectoral hock. Proof: Take ratio of average wage for any group g in any two ector and t: θ ( wz m gm) m 0 w = wee [ ig chooing ] wz g = we[ chooing ] t eigt t θ ( wz m gm) m= 0 w t wz z = z g gt t gt 1/ θ 1/ θ Γ(1 1 / θ ) Γ(1 1 / θ ) C. Proof of Propoition in ain Text (for G = 1) Propoition: In the cae with a ingle group (G = 1) and arbitrary number of ector ( > 1), a negative hock to ector m (i.e., a reduction in A m ) reduce employment and average wage in OA-3

4 ector m and increae the hare of the population in the non-work ector and in the other work ector. The ratio of average wage acro ector i not affected by the hock, meaning that average wage in all ector decline by the ame proportion in repone to any combination of ectoral hock. Proof: The lat part of the proportion i true in general cae where G > 1, o it i implied by reult above. To prove the remainder of propoition, we firt derive reult for ratio of wage (per efficiency unit) in each combination of ector and t. To do thi, we tart with equilibrium condition for ector when there i a ingle group (G = 1): 1 1 θ θ θ 1 θ 1 A ( wz g ) ( wm zgm ) (1 ) = Y Γ m=0 θ w Next, we take ratio acro ector and t: θ 1 1 wz g A wt = wz t gt At w 1 θ 1 w A + z gt = wt A t z g θ 1 θ+ 1 We next ue the zero-profit condition to derive cloed-form expreion for w : 1 1 θ 1 θ( 1) ( θ 1)( 1) 1 θ+ 1 θ+ 1 θ+ 1 θ+ 1 = m m m=1 w A z A z From thi expreion we can then olve for P θ ( 1) θ θ+ 1 θ+ 1 A z = θ ( 1) θ θ θ+ 1 θ+ 1 z0 + Am zm m=1 P With thi expreion, the propoition i traightforward given retriction on θ and. OA-4

5 Online Appendix Table OA.1 Employment Repone to Houing Demand Change and : Full Set of Etimated Coefficient Sample: Dependent Variable i Change in Employment to Population Ratio, Non- Non- and (1) (2) (3) (4) (5) Houing Demand Change [Partial Effect] [Total Effect] (0.008) (0.004) (0.002) (0.003) (0.003) [0.000] [0.013] [0.000] [0.271] [0.000] (0.210) (0.086) (0.142) (0.134) (0.116) [0.645] [0.037] [0.002] [0.034] [0.027] (0.270) (0.125) (0.165) (0.149) (0.155) [0.008] [0.003] [0.000] [0.016] [0.000] Houing demand change anufacturing decline Baeline control (year 2000 value): Log Population (0.002) (0.001) (0.002) (0.001) (0.001) [0.228] [0.096] [0.172] [0.533] [0.070] Share of Employed Worker with Degree (0.034) (0.016) (0.025) (0.019) (0.022) [0.000] [0.425] [0.000] [0.141] [0.005] Share of Employed (0.073) (0.027) (0.047) (0.031) (0.041) [0.000] [0.183] [0.000] [0.074] [0.000] N R Include baeline control y y y y y Note: Thi table report reult of etimating equation (5) and (6) by OLS for variou demographic group. A 0.1 unit increae in the Houing Demand Change repreent a 10 log point increae in houing demand, while a 0.01 unit decreae in variable correpond to a 1 percentage point decreae in predicted hare of population employed in manufacturing. The baeline control include the initial (year 2000) value of the hare of employed worker with a college degree, the hare of women in the labor force, and the log population in the SA. The tandardized effect recale the coefficient by a one tandard deviation change uing the cro-sa tandard deviation. Standard error, adjuted to allow for an arbitrary variance-covariance matrix for each tate, are in parenthee and p-value are in bracket. OA-5

6 Online Appendix Table OA.2 Firt Stage for Houing Demand Change Uing agnitude of Structural Break in Houe Price a Intrumental Variable Dependent variable: Change in Share of Non- Houing Demand Change, Employed in anufacturing, (1) (2) (3) agnitude of Structural Break in Houe Price [Houing Boom Intrument] Predicted (0.814) (0.734) (0.020) [0.000] [0.000] [0.207] Change in houing demand intrument anufacturing decline Firt-tage F-tatitic (3.989) (0.080) [0.001] [0.000] R Include baeline control y y y Note: N=275 in all column. Thi table report reult of etimating equation (6) by OLS. The baeline control variable included are initial (year 2000) value of the hare of employed worker with a college degree, the hare of women in labor force, and log population. The agnitude of Structural Break in Houe Price correpond to the etimated SA-pecific magnitude of tructural break in houe price a etimated from quarterly houe price data (from FHFA), where the tructural break i contrained to be between (incluive). The tructural break procedure i carried out SA-by-SA by regreing (reidualized) log houe price on a quadratic time trend and a tructural break term, where the timing of the tructural break i elected to maximize the R 2 of the time-erie regreion. The tandardized effect recale the coefficient by a one tandard deviation change uing the cro-sa tandard deviation. Standard error, adjuted to allow for an arbitrary variance-covariance matrix for each tate, are in parenthee and p-value are in bracket. OA-6

7 Online Appendix Table OA.3 [IV Etimate of Table 2] Employment and Contruction Employment Share Repone to Houing Demand Change and Sample: Non- Non- and (1) (2) (3) (4) (5) Panel A: Dependent Variable i Change in Employment to Population Ratio, Houing Demand Change (0.011) (0.003) (0.006) (0.005) (0.005) [0.005] [0.003] [0.452] [0.687] [0.005] (0.218) (0.109) (0.137) (0.149) (0.119) [0.027] [0.005] [0.000] [0.012] [0.000] Houing demand change anufacturing decline Firt tage F-tatitic Panel B: Dependent Variable i Change in Share Employed in Contruction and FIRE, Houing Demand Change (0.010) (0.003) (0.002) (0.004) (0.005) [0.003] [0.683] [0.001] [0.094] [0.005] (0.236) (0.128) (0.100) (0.105) (0.128) [0.412] [0.078] [0.386] [0.092] [0.393] Houing demand change anufacturing decline Firt tage F-tatitic N Include baeline control y y y y y Note: Thi table report reult of etimating equation (5) and (6) by IV for variou demographic group. A 0.1 unit increae in the Houing Demand Change repreent a 10 log point increae in houing demand, while a 0.01 unit decreae in variable correpond to a 1 percentage point decreae in predicted hare of population employed in manufacturing. The baeline control include the initial (year 2000) value of the hare of employed worker with a college degree, the hare of women in the labor force, and the log population in the SA. The tandardized effect recale the coefficient by a one tandard deviation change uing the cro-sa tandard deviation. Standard error, adjuted to allow for an arbitrary variancecovariance matrix for each tate, are in parenthee and p-value are in bracket. OA-7

8 Online Appendix Table OA.4 [IV Etimate of Table 3] Employment Repone to Houing Demand Change and anufacturing Decline, b A G d I i ti St t Dependent Variable i Change in Employment to Population Ratio, Retriction: Sample: Houing Demand Change Non- Age Age Drop Immigrant and Non- and Non- and (1) (2) (3) (4) (3) (4) (0.017) (0.006) (0.009) (0.005) (0.008) (0.005) [0.029] [0.001] [0.016] [0.061] [0.137] [0.332] (0.226) (0.114) (0.182) (0.144) (0.117) (0.094) [0.328] [0.005] [0.001] [0.000] [0.000] [0.000] Standardized ( 1) effect Houing demand change anufacturing decline Include baeline control y y y y y y Note: N=275 in all column. Thi table report IV etimate analogou to column (1) and (5) in Table 2 for alternative ample of either non-college men or all prime-aged men and women, uing the ame et of baeline control. See Table 2 for more detail. The tandardized effect recale the coefficient by a one tandard deviation change uing the cro-sa tandard deviation. Standard error, adjuted to allow for an arbitrary variance-covariance matrix for each tate, are in parenthee and p-value are in bracket. OA-8

9 Online Appendix OA.5 [IV Etimate of Table 5] Sectoral Wage Repone to Houing Demand Change and Sample: Average Log Wage, Sector anufacturing Only Sectoral Wage Repone Contruction and FIRE Only Other Sector, Excl. anuf. and Contruction/FIRE (1) (2) (3) (4) Panel A: Sectoral Wage Repone for Non-, Houing Demand Change (0.012) (0.012) (0.011) (0.013) [0.000] [0.000] [0.000] [0.000] (0.322) (0.374) (0.323) (0.373) [0.000] [0.000] [0.000] [0.001] Houing demand change anufacturing decline Firt tage F-tatitic Panel B: Sectoral Wage Repone for and, Houing Demand Change (0.011) (0.011) (0.010) (0.011) [0.000] [0.000] [0.000] [0.000] (0.283) (0.312) (0.298) (0.326) [0.004] [0.014] [0.014] [0.048] Houing demand change anufacturing decline Firt tage F-tatitic N Include baeline control y y y y Note: Thi table report reult of etimating equation (5) and (6) by OLS for variou demographic group. A 0.1 unit increae in the Predicted Houing Demand Change repreent a 10 percent increae in houing demand, while a 0.1 unit change in Predicted variable correpond to a 10 percentage point change in predicted hare of population employed in manufacturing. The baeline control include the initial (year 2000) value of the hare of employed worker with a college degree, the hare of women in the labor force, and the log population in the SA. The tandardized effect recale the coefficient by a one tandard deviation change uing the cro-sa tandard deviation. Standard error, adjuted to allow for an arbitrary variance-covariance matrix for each tate, are in parenthee and p-value are in bracket. OA-9

10 Online Appendix Table OA.6 [IV Etimate of Table 6] Employment Repone to Houing Demand Change and : Longer Run Reult Dependent Variable i Change in Employment to Population Ratio Change defined acro following year: Sample: Predicted Houing Demand Change, Predicted, Non and Non- and (1) (2) (3) (4) (0.011) (0.005) (0.019) (0.009) [0.005] [0.005] [0.977] [0.609] (0.218) (0.119) (0.378) (0.194) [0.027] [0.000] [0.235] [0.010] Houing demand change anufacturing decline Firt tage F-tatitic Include baeline control y y y y Note: N=275 in all column. Thi table report IV etimate analogou to column (1) and (5) in Table 2 for alternative ample period for dependent variable (but keeping right-hand ide variable the ame). See Table 2 for more detail. The tandardized effect recale the coefficient by a one tandard deviation change uing the cro-sa tandard deviation. Standard error, adjuted to allow for an arbitrary variance-covariance matrix for each tate, are in parenthee and p-value are in bracket. OA-10

11 Dependent variable: Sample: Online Appendix Table OA.7 [IV Etimate of Table 7] Decompoing Employment Repone into Non-participation and Unemployment Change in Employment to Population Ratio, Non- and Change in Non-participant/Population Ratio, Non- and Change in Unemployed/Population Ratio, Non- and (1) (2) (3) (4) (5) (6) Houing Demand Change (0.011) (0.005) (0.005) (0.003) (0.008) (0.003) [0.005] [0.005] [0.002] [0.000] [0.061] [0.527] (0.218) (0.119) (0.111) (0.069) (0.192) (0.111) [0.027] [0.000] [0.010] [0.002] [0.301] [0.006] Houing demand change anufacturing decline Firt tage F-tatitic Include baeline control y y y y y y Note: N=275 in all column. Thi table report IV etimate analogou to column (1) and (5) in Table 2 for alternative dependent variable, allowing the overall employment effect to be decompoed into a change in unemployment rate and change in labor force participation rate. See Table 2 for more detail. The tandardized effect recale the coefficient by a one tandard deviation change uing the cro-sa tandard deviation. Standard error, adjuted to allow for an arbitrary variance-covariance matrix for each tate, are in parenthee and p-value are in bracket. OA-11

12 Online Appendix Table OA.8 [IV Etimate of Table 8] Wage and Population Repone to Houing Demand Change and anufacturing Decline Sample: Non- Non- and (1) (2) (3) (4) (5) Houing Demand Change Dependent Variable i Change in Population, (0.069) (0.033) (0.065) (0.031) (0.055) [0.457] [0.093] [0.489] [0.040] [0.334] (0.759) (0.713) (0.794) (0.755) (0.718) [0.089] [0.163] [0.072] [0.273] [0.081] Houing demand change anufacturing decline Firt tage F-tatitic N Include baeline control y y y y y Note: Thi table report reult of etimating equation (5) and (6) by IV for variou demographic group. A 0.1 unit increae in the Predicted Houing Demand Change repreent a 10 percent increae in houing demand, while a 0.1 unit change in Predicted variable correpond to a 10 percentage point change in predicted hare of population employed in manufacturing. The baeline control include the initial (year 2000) value of the hare of employed worker with a college degree, the hare of women in the labor force, and the log population in the SA. The tandardized effect recale the coefficient by a one tandard deviation change uing the cro-sa tandard deviation. Standard error, adjuted to allow for an arbitrary variance-covariance matrix for each tate, are in parenthee and p-value are in bracket. OA-12

13 Online Appendix Figure OA.1: Houe Price Growth, veru Houe price growth, degree line Houe price growth, Note: Thi figure how the correlation between the change in houe price in and the change in houe price in for the 275 SA in our baeline ample. The dotted line i a 45-degree line (i.e., lope of -1). OA-13

14 Online Appendix Figure OA.2: Lack of Correlation Between Structural Break Intrument and... Lagged Change in Houe Price Index, Lagged Houe Price Index, 1990 Lagged Houe Price Growth, lope = 0.56 (0.47), R 2 = 0.06 Houe Price Index, lope = 0.50 (0.35), R 2 = 0.09 Change in Two-Year Enrollment Per Capita, Two-Year Enrollment Per Capita, 1990 Two year college enrollment per capita, change lope = 0.01 (0.04), R 2 = Two year college enrollment per capita, 1990 level lope = 0.08 (0.06), R 2 = 0.02 Change in Four-Year Enrollment Per Capita, Four-Year Enrollment Per Capita, 1990 Four year college enrollment per capita, change lope = (0.01), R 2 = Four year college enrollment per capita, 1990 level lope = 0.07 (0.04), R 2 = 0.02 Employment Rate, 1990 Average Wage, 1990 Employment Rate in lope = 0.04 (0.08) R 2 = Average Wage in lope = 0.57 (3.01), R 2 = Note: Thi figure report the correlation between the tructural break intrument ued in the IV pecification and lagged level and change in houe price, emlpoyment rate, wage, and two-year and four-year college enrollment (per capita). OA-14

15 Online Appendix Figure OA.3: Significant Correlation Between Structural Break Intrument and... Growth in Price-Rent Ratio Change in Out-of-Town Buyer Share Growth in Price to Rent Ratio, lope = 3.81 (0.71), R 2 = 0.54 Change in Share of Out of Town Buyer lope = 0.15 (0.05), R 2 = 0.43 Note: Thi figure report the correlation between the tructural break intrument ued in the IV pecification and the growth in the price-rent ratio and the change in the hare of out-of-town buyer, which can be interpreted a proxie for peculation. See text for detail of the price-rent ratio calculation and the ource of the out of town buyer hare. OA-15