Abstract.
This paper examines how differences in income shape individuals' migration responses to climate change and the resulting aggregate welfare implications. Standard quantitative spatial models predict that workers migrate away from climate-affected regions, thereby mitigating welfare losses; however, these models often fail to capture differences in migration behavior across the income distribution. Micro-level evidence suggests that low-income households often do not migrate despite significant potential gains from relocating. To reconcile these insights, I develop a dynamic quantitative spatial model that incorporates both monetary and non-monetary migration costs. Under decreasing marginal utility of income, these costs generate lower mobility among low-income workers. Climate change affects the model economy through two channels: first, by impacting agricultural productivity and resulting in income losses at the lower end of the income distribution; second, indirectly, by increasing the relative burden of monetary migration costs as average incomes decline. Calibration relies on aggregate migration flows. Simulations for Brazil (2010-2100) indicate that without migration, climate change reduces expected average lifetime utility by 2.2\%. Migration at calibrated costs reduces welfare losses to 1.7\%. Migration also mitigates the widening of regional and sectoral inequalities that climate change would otherwise induce.
Abstract.
The organization of production varies widely across countries, with firms being substantially
smaller in low-income countries. At the same time, educational attainment is lower in low-income
countries. How are these two patterns related? In this paper, we examine the relationship between skill
endowment and firm size across different stages of economic development. Using harmonized labor
force data from 54 countries, we measure the skill intensity of employment by firm size and document
four key facts. First, we show that the share of employment in large firms is about twice as high
in high-income countries as in low-income countries. Second, across countries, large firms employ
more skilled workers than small firms. Third, small firms in high-income countries are nearly as
skill-intensive as large firms, but small firms in low-income countries employ far fewer skilled workers
than their larger counterparts. Fourth, the skill gap between small and large firms is narrow when the
skill premium is low, but it widens substantially when the premium is high. These findings suggest that
small firms can easily substitute high-skill for low-skill workers when skilled workers are scarce and
expensive, whereas large firms are less flexible. As a result, lower availability of high-skilled workers
restricts the prevalence of large firms in low-income economies. We then use a span-of-control model
with worker skill heterogeneity and two technologies (large- and small-scale) to analyze the impact
of skill endowments on firm size distribution and economic development. Calibrated to U.S. data
and varying only skill endowments to match those of low-, middle-, and high-income countries, the
model replicates observed employment patterns by firm size and the skill intensity of firms across
different stages of development. We interpret this as evidence that differences in skill endowments
are a central driver of firm size distribution. Our findings imply that skill accumulation promotes
development directly, by increasing productivity, and indirectly, by enabling the expansion of larger,
more productive firms.