Essays on Firms and Public Policies

Abstract

This dissertation is composed of three essays on firms and public policies. The first essay investigates the role substitutability among age cohorts within the firm for the consequences of an increase in the full retirement age, and for other policies that lower the turnover of older workers. The second essay examines the redistribution of labor costs within the firm. The third essay investigates the role of firms for the passthrough of the effects of public policies. In the first essay, which is joint work with Giulia Bovini, we study the effects of an increase in the full retirement age on labor demand, incumbent workers, and on the revenues raised on incumbent employees through this policy. Using administrative data, we first document that older workers delaying retirement and younger co-workers are substitutes. We then show that labor demand spillovers cause large leakages in the revenues raised on a firm's employees through the pension reform. We conclude that firm's behavior and labor substitutability have important implications for the impact of policies that lower the turnover of older workers. In the second essay, I ask how labor costs are redistributed within firms. I use administrative data for the universe of French private sector companies to study a payroll tax reform implemented in France in 2003. The policy changed payroll tax subsidies for low-paid workers leaving tax rates unchanged for other workers. I show that tax cuts affect both low-paid and high-paid employees by increasing their net wages. This redistribution reduces the effectiveness of the policy in transferring resources to low-paid workers. In the third essay, I study the role of firms for the consequences of public policies. I develop a framework to incorporate firms' responses to public policies in welfare analysis. The model rationalizes the use of firm-level causal estimates of the effects of a policy to study its welfare impact. I apply the model to existing estimates in the literature on the effects of policies. The new approach leads to significantly different conclusions relative to standard models of welfare.