"Do Bartik Instruments Resolve Simultaneity Bias?"
Abstract: Despite their widespread use, explicit identifying assumptions are not discussed in most applications of Bartik instruments. This paper provides the conditions under which these instruments recover structural parameters from a linear system of simultaneous equations. Taking the seminal application in Bartik (1991) as an example for context, the key insight is as follows; the Bartik instrument only uses variation in local employment growth that is due to industry-specific employment growth common to all cities. Identification of labor supply parameters requires that growth in this common industry component is solely attributable to labor demand growth. A further consequence is that shocks to local employment growth that are local in nature, a common identification concern among researchers, are unrelated to the instrument's validity. An empirical application to the impact of immigration on wages is used to assess the instrument's validity in a specific context.