Bartik Instruments: What, When, Why, and How

TLDR

The Bartik instrument is constructed by interacting local industry shares with national industry growth rates. The paper aims to clarify the assumptions underlying the Bartik instrument, explain how it weights exposure designs, and outline methods to assess the plausibility of the research design. The authors describe the construction of the Bartik instrument as a weighted sum of local industry shares and national growth rates, capturing differential exposure to common shocks. They demonstrate the instrument’s utility by estimating labor‑supply elasticity and the elasticity of substitution between immigrants and natives. JEL codes: C51, F14, J15, J22, L60, R23, R32.

Abstract

The Bartik instrument is formed by interacting local industry shares and national industry growth rates. We show that the typical use of a Bartik instrument assumes a pooled exposure research design, where the shares measure differential exposure to common shocks, and identification is based on exogeneity of the shares. Next, we show how the Bartik instrument weights each of the exposure designs. Finally, we discuss how to assess the plausibility of the research design. We illustrate our results through two applications: estimating the elasticity of labor supply, and estimating the elasticity of substitution between immigrants and natives. (JEL C51, F14, J15, J22, L60, R23, R32)