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Federal Reserve Bank of St. Louis working papers are preliminary materials circulated to stimulate discussion and critial comment.

Regional Economics

Industry Localization and Earnings Inequality: Evidence from U.S. Manufacturing

While the productivity gains associated with the geographic concentration of industry (i.e. localization) are by now well-documented, little work has considered how those gains are distributed across individual workers. This paper offers evidence on the connection between total employment and the relative wage earnings of high- and low-skill workers (i.e. inequality) within two-digit manufacturing industries across the states and a collection of metropolitan areas in the U.S. between 1970 and 1990.

The Value of Foreclosed Property

This paper examines the expected price appreciation of distressed property and compares it to the prevailing metropolitan area appreciation rate. The results show that the simple fact that the property is foreclosed indicates that it will be sold at a substantial discount (appreciate less than expected).

Worker Turnover, Industry Localization, and Producer Size

Empirically, large employers have been shown to devote greater resources to filling vacancies than small employers. Following this evidence, this paper offers a theory of producer size based on labor market search, whereby a key factor in the determination of producer's total employment is the ease with which workers can be found to fill jobs that are, periodically, vacated.

Cities, Skills, and Inequality

The surge in U.S. wage inequality over the past several decades is now commonly attributed to an increase in the returns paid to skill. Although theories differ with respect to why, specifically, this increase has come about, many agree that it is strongly tied to the increase in the relative supply of skilled (i.e. highly educated) workers in the U.S. labor market.

Racial Profiling or Racist Policing? Bounds Tests in Aggregate Data

State-wide reports on police traffic stops and searches summarize very large populations, making them potentially powerful tools for identifying racial bias, particularly when statistics on search outcomes are included. But when the reported statistics conflate searches involving different levels of police discretion, standard tests for racial bias are not applicable.

The Information Content of Regional Employment Data for Forecasting Aggregate Conditions

We consider whether disaggregated data enhances the efficiency of aggregate employment forecasts. We find that incorporating spatial interaction into a disaggregated forecasting model lowers the out-of-sample mean-squared-error from a univariate aggregate model by 70 percent at a two-year horizon.

A Spatial Analysis of State Banking Regulation

We use a spatial model to investigate a state's choice of branch banking and interstate banking regimes as a function of the regime choices made by other states and other variables suggested in the literature. We extend the basic spatial econometric model by allowing spatial dependence to vary by geographic region.

Spatial Probit and the Geographic Patterns of State Lotteries

We implement a spatial probit model to differentiate states with a lottery from those without a lottery. Our analysis extends the basic spatial probit model by allowing spatial dependence to vary across geographic regions.

Nonlinear Hedonics and the Search for School District Quality

We reexamine the relationship between school quality and house prices and find it to be nonlinear. Unlike most studies in the literature, we find that the price premium parents must pay to buy a house associated with a better school increases as school quality increases.

State Government Finances: World War II to the Current Crisis

This article will explore the extent, causes, and proposed solutions of the current fiscal crisis from a historical perspective of state finance. Although the current fiscal crisis is severe, it becomes more difficult to assess unless one has a more complete understanding of the historical changes that have occurred in state revenue streams.

U. S. Regional Business Cycles and the Natural Rate of Unemployment

Estimates of the natural rate of unemployment are important in many macroeconomic models used by economists and policy advisors. This paper shows how such estimates might benefit from closer attention to regional developments.

Business Cycle Phases in U.S. States

The U.S. aggregate business cycle is often characterized as a series of distinct recession and expansion phases. We apply a regime-switching model to state-level coincident indexes to characterize state business cycles in this way.

Structural Breaks and Regional Disparities in the Transmission of Monetary Policy

Using a regional VAR, we find large differences in the effects of monetary policy shocks across regions of the United States.

Political Allocation of Agriculture Disaster Payments in the 1990s

This paper explores the impact of political influence on the allocation of U.S. direct agriculture disaster payments. The results reveal that disaster payments are not based solely on need, but are higher in those states represented by public officials key to the allocation of relief.

Does Consumer Sentiment Predict Regional Consumption?

This paper tests the ability of consumer sentiment to predict retail spending at the state level. The results here suggest that, although there is a significant relationship between sentiment measures and retail sales growth in several states, consumer sentiment exhibits only modest predictive power for future changes of retail spending.

Entrepreneurship and the Deregulation of Banking

This paper presents evidence that banking deregulation led to decreases in entrepreneurship in some U.S. regions, and to increases in others. This is contrary to recent research that found an unambiguous positive relationship.

Entrepreneurship and the Policy Environment

This paper uses a spatial panel approach to examine the effect of the government-policy environment on the level of entrepreneurship. Specifically, we investigate whether marginal income tax rates and bankruptcy exemptions influence rates of entrepreneurship.

Tax Competition and Tax Harmonization with Evasion

We examine a two-jurisdiction tax competition environment where local governments can only imperfectly monitor where agents pay taxes and risk-averse individuals my choose to cross borders to pay lower taxes in a neighboring location.

The Political Economy of FEMA Disaster Payments

We explore whether presidential and congressional influences affect the rate of disaster declaration and the allocation of FEMA (Federal Emergency Management Agency) disaster expenditures across states. We find that states politically important to the president have a higher rate of disaster declaration by the president, and that FEMA disaster expenditures are higher in states having congressional representation on FEMA oversight committees.

State Lottery Revenue: The Importance of Game Characteristics

Previous studies find state lottery sales are significantly influenced by socioeconomic characteristics of the population. We extend this literature by examining how the overall expected value, the top prize, and the total combinations influence sales after controlling for these other socioeconomic factors.

Inefficient Education Spending in Public School District: A Case for Consolidation

This paper estimates scale economies for Arkansas school districts. Large economies of scale exist in teacher salary and supply costs, as well as total costs.

The Importance of Scale Economies and Geographic Diversification in Community Bank Mergers

Mergers of community banks across economic market areas potentially reduce both idiosyncratic and local market risk. A merger may reduce idiosyncratic risk because the larger post-merger bank has a larger customer base. Negative credit and liquidity shocks from individual customers would have smaller effects on the portfolio of the merged entity than on the individual community banks involved in the merger.

Corporate Governance, Entrenched Labor, and Economic Growth

The German system of codetermination contributes to the entrenchment of labor. We show in a two-period model of project choice that entrenched labor leads to underinvestment and overstaffing.

The British Beveridge Curve: A Tale of Ten Regions

Recent work has suggested the possibility that the Beveridge curve can shift over the business cycle. This is in contrast with a large body of literature claiming that Beveridge curves have shifted due to structural changes alone.

Trade Policy Opinions at the State Level

Despite economists' nearly universal support for free trade policies, the general public has serious reservations about free trade. To understand this opposition, one must understand the preferences of individuals as they relate to the policy choices of policymakers. Ideally, one would like to know how these preferences differ across regions because legislators who represent their constituents in the U.S. Congress cast the actual votes on trade policies.

NAFTA and the Changing Pattern of State Exports

The trade liberalization associated with NAFTA has affected the pattern of state exports by altering the origin as well as the destination of merchandise exports. We find that NAFTA has increased US merchandise exports to Mexico and Canada by just over 15 percent, and has increased total US merchandise exports by nearly 8 percent.

Gravity Model Specification and the Effects of the Canada-U.S. Border

There is a well-established literature finding that the Canada-U.S. border has a large dampening effect on trade, is asymmetric, and differs across provinces. In this paper, I demonstrate that the standard gravity model used to obtain these results provides biased estimates of the volume of trade

NAFTA and the Geography of North American Trade

Debates over the desirability a preferential trading area (PTA) begin with the supposition that it will have two effects on the volume of trade: it will increase trade between PTA members, and decrease trade between members and non-members. This paper demonstrates, however, that at the regional level the effects of NAFTA have been much more complicated than what is normally supposed should happen.

What Makes a Region Entrepreneurial? Evidence from Britain

There is a great deal of variation in the levels of entrepreneurship, or rates of self-employment, across the regions of Britain. Over the period 1983-95, average self-employment in the North, Scotland, and the West Midlands was respectively 25%, 15%, and 15% lower than the national average, whereas in the South West, East Anglia, and Wales it was respectively 28%, 23%, and 21% higher.

Gender Differences in Self-Employment

This paper examines the factors that influence the transition into self-employment in the German labor market, paying particular attention to gender differences.

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