Working Paper: NBER ID: w30127
Authors: Xiang Ding; Teresa C. Fort; Stephen J. Redding; Peter K. Schott
Abstract: We document the role of intangible capital in manufacturing firms' substantial contribution to non-manufacturing employment growth from 1977-2019. Exploiting data on firms' "auxiliary" establishments, we develop a novel measure of proprietary in-house knowledge and show that it is associated with increased growth and industry switching. We rationalize this reallocation in a model where firms combine physical and knowledge inputs as complements, and where producing the latter in-house confers a sector-neutral productivity advantage facilitating within-firm structural transformation. Consistent with the model, manufacturing firms with auxiliary employment pivot towards services in response to a plausibly exogenous decline in their physical input prices.
Keywords: intangible capital; manufacturing; non-manufacturing employment; structural change
JEL Codes: D24; F14; L16; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decline in physical input prices (Q31) | non-manufacturing employment growth (O14) |
| in-house knowledge production (O36) | non-manufacturing employment growth (O14) |
| presence of in-house knowledge workers (O36) | non-manufacturing employment growth (O14) |
| greater auxiliary employment shares (J68) | faster growth and pivot towards new industries (O14) |
| 10 percentage point increase in input exposure (C67) | 19% increase in non-manufacturing employment (L69) |
| output shock (E23) | larger negative effect on manufacturing employment (F66) |