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The Effects of High-skilled Firm Entry on Incumbent Residents

What happens to incumbent residents following the entry of a large high-skilled firm? To study this, we construct a dataset of 391 such entries in the U.S. from 1990-2010. We follow incumbent residents over 13 years using rich micro-data on individual address histories, property characteristics, and financial records. First, we estimate the effects of the firm entry on incumbent residents' consumption, finances, and mobility. To do so, we compare outcomes for residents living close to the entry location with those living far away, while controlling for their proximity to potential high-skilled firm entry sites. Next, we decompose welfare from changes in wages, rents, and amenities for incumbent residents using a model of individual home and work location choice. Taken together, our results show high-skilled incumbents, especially homeowners, benefit. Low-skilled owners benefit less than high-skilled owners. Low-skilled renters are harmed. In the medium to long run, they incur an annual welfare loss that is equivalent to a 0.2 percent decline in their wages one year prior to the entry.

Franklin Qian
Rose Tan
Publication Date
April, 2021