Essays in Labor and Finance

Abstract

In chapter 1, I quantify the economic value that firms of different productivity levels derive from their labor market power by estimating the effect of unanticipated firm-level labor demand shocks on wages and employment at publicly listed U.S. firms. Productive firms face lower labor supply elasticities on average, and still lower elasticities for skilled workers, who are disproportionately employed at more productive firms. Using a dynamic wage posting model in which firms face upward-sloping labor supply and adjustment costs in hiring, I estimate that firms in the top and bottom quartiles of labor productivity pay 62% and 94% of marginal product, despite the fact that adjustment costs temper the exercise of labor market power. Markdown differentials can explain three-fifths of the average spread in log labor shares between high- and low-labor productivity firms, and the evolution of these differentials can explain most of the change in the aggregate labor share in the 1991–2014 period. Holding constant equilibrium labor demand, I estimate that about a third of capital income for the typical firm stems from wage markdowns. Aggregate wage markdowns are worth two-fifths of total capital income.

In chapter 2, joint work with Leonid Kogan, Dimitris Papanikolaou, and Larry Schmidt, we construct new technology indicators using textual analysis of patent documents and occupation task descriptions that span almost two centuries (1850–2010). At the industry level, improvements in technology are associated with higher labor productivity but a decline in the labor share. Exploiting variation in the extent certain technologies are related to specific occupations, we show that technological innovation has been largely associated with worse labor market outcomes—wages and employment—for incumbent workers in related occupations using a combination of public-use and confidential administrative data. Panel data on individual worker earnings reveal that less educated, older, and more highly-paid workers experience significantly greater declines in average earnings and earnings risk following related technological advances. We reconcile these facts with the standard view of technology-skill complementarity using a model that allows for skill displacement.

In chapter 3, I show that stocks with similar characteristics but different levels of ownership by financial institutions have returns and risk premia that comove very differently with shocks to the risk-bearing capacity of financial intermediaries. After accounting for observable stock characteristics, excess returns on more intermediated stocks have higher betas on contemporaneous shocks to intermediary willingness to take risk and are more predictable by state variables that proxy for intermediary health. The empirical evidence supports the predictions of asset pricing models featuring financial intermediaries as marginal investors who face frictions that induce changes in their risk-bearing capacity. This suggests that such models are useful for explaining price movements not only in markets for complex financial assets, but also within asset classes where households face comparatively low barriers to direct participation.