Essays in Labor Economics and Corporate Finance

Abstract

This dissertation consists of three chapters in labor economics and corporate finance. The chapters are linked by their common focus on questions with macroeconomic implications.

The first chapter, co-authored with Emil Verner, estimates the spending effects of Unemployment Insurance (UI) benefit extensions during macroeconomic down- turns. Using variation across U.S. states in the extension of UI benefits following the Great Recession, we estimate that an additional week of UI increased consumption of households with an unemployed head by a statistically significant 1.68 percent, which translates into a marginal propensity to consume in the range of 0.58-0.90. This is substantially larger than existing estimates of the consumption response to other types of income transfers.

The second chapter evaluates alternative explanations of a significant macroeconomic trend of the past 30 years: the rise in corporate payouts. In particular, I assess the role of corporate governance, borrowing costs, and market power, each of which has different implications for aggregate investment. My results favor the hypothesis that market power has driven the rise in payouts. I find that both profits and payouts grew dramatically in firms with high market power starting in the 1990s. I estimate that the change in the cross-sectional relationship between payouts and mar- ket power accounts for over 50% of the aggregate increase in payouts from the 1990s onwards. I do not find a close link between payouts and either corporate governance or borrowing.

The third chapter assesses the relationship between unionization and wage rigidity, which plays a key role in many macroeconomic models, based on the German labor market experience in the 2000s. Decentralization of the wage setting process in Germany starting in the mid-1990s led to variation in unionization conditional on industry, geography, and firm size. Comparing the evolution of wages and employment for similar firms with different collective bargaining coverage in the 2000s, I find only small and statistically insignificant differences in both wage or employment cyclicality between covered and uncovered firms.