The Macroeconomics of Establishment-Level Employment Dynamics.

Abstract

This dissertation comprises four chapters examining the macroeconomics of establishment-level employment dynamics. "Wage Rigidity and Employment Outcomes: Evidence from Administrative Data," examines the relationship between wage rigidity and employment outcomes using employer-employee data. The estimates suggest wage rigidity prevents 24.5 percent of wage cuts that would have occurred in absence of wage rigidity. An establishment with the average level of wage rigidity is predicted to have a 0.7 percentage point increase in the layoff rate, a 1.8 and 1.3 percentage point reduction in the quit and hire rates.

"Wage Rigidity and Employment Outcomes: Theory" derives the analytics of a structural model, showing that wage rigidity works through two channels. First, a cost to cutting wages deters establishments from reducing the current wages, increasing layoffs and reducing hires to lower the wage bill in the face of an adverse shock. Second, forward-looking establishments reduce the cost of wage cuts in future periods through dampening wage increases in the current period. Counterfactual policy simulations suggest that inflation can "grease the wheels" of the labor market by facilitating real wage cuts when nominal wage cuts are costly to achieve.

"Wage Rigidity and Employment Outcomes: The Role of Establishment Size and Age" shows that, on average, large establishments have more wage rigidity than small establishments and old establishments have more wage rigidity than young establishments. Estimates show, however, that wage rigidity and employment has a stronger relationship in younger establishments compared to older establishments.

"Bank Balance Sheet Shocks and the Effects of the Financial Crisis" uses employer-employee data from Germany to examine the impact of exogenous shocks to bank capital. German regional banks' trading losses from U.S. mortgage-backed securities cause a deep economic contraction in the banks’ exclusive geographic domain. Annual loan and output growth decline by 20 and 0.3 percentage points, respectively, and the annual unemployment rate rises by 1.4 percentage points in affected states compared to unaffected states, on average. The effect is stronger for privately-held than for publicly-listed firms. Private firms in affected states reduce net hiring by 24 percentage points and cut investment by one-half, relative to publicly-listed firms.