Essays in Financial and Labor Markets

Abstract

This dissertation is made up of three essays in financial and labor markets. A common theme is understanding how frictions in financial and labor markets can make workers, firms, and investors highly vulnerable to negative economic shocks, with potentially long-lasting, real consequences. The first essay shows how loose conditions in credit markets induce workers to take jobs at financially-risky firms. This increases workers' labor earnings in the short run; but once credit conditions revert, they become displaced and suffer a persistent drop in earnings. The second essay shows that losing one's job during recessions is costly in part due to labor market frictions that make it hard for many workers to search for new jobs at the same time. The third essay focuses on understanding why financial markets may become overheated in the first place. It documents that certain investors persistently overreact to salient price increases and news announcements, leading the stocks that they invest it to exhibit predictable boom-bust cycles.