Essays in Labor Economics and Macroeconomics

Abstract

In the first essay, we argue that productive firms share rents with workers only in occupations where workers have individual hold-up power. We present a model of wage determination where firms produce using a novel generalization of Kremer (1993)'s O-ring production function. Workers have individual hold-up power if (i) labor is organized into distinct, differentiated positions (ii) the output of positions is individually complementary or "critical" in the production process, and (iii) skills are position-specific, i.e., skills are acquired on the job and are not transferable across positions or firms. If output losses from an unfilled position are larger at productive firms, incomplete contracts and on-the-job search incentivize productive firms to pay differentially high wages. We estimate individual worker hold-up power by occupation using the effect of worker deaths on firm profits in Danish administrative data and using a measure of within-firm, across-position task differentiation from US job posting data. High hold-up occupations exhibit both higher wage levels and higher long-run passthrough of permanent firm productivity innovations to wages, supporting the main model predictions. Accounting for heterogeneity in hold-up power across occupations has numerous implications for wage inequality: (1) greater employment of men in high hold-up occupations can account for one fifth of the Danish gender wage gap; (2) rising "superstar firms" increase wage inequality; (3) hold-up power decreases the responsiveness of wages to labor market slack. In the second essay, we argue that secular change in both the production and composition of investment goods has weakened private investment's role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes that weaken this channel: (i) labor's share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy. A small open economy, two agent New Keynesian model calibrated to match these facts implies a 38% and 26% weaker response of labor income and aggregate consumption, respectively, to real interest rate shocks in a 2010's economy relative to a 1960's economy. In the third essay, we derive a simple and tractable model of dynamic monopsony with frictional on-the-job search and idiosyncratic preferences over workplaces. We show that finite recruiting and separation elasticities do not imply markdowns of wages from marginal product net of turnover costs, so long as recruiting costs are linear or convex in proportion to firm size. The standard model without a recruiting expenditure margin is nested as a special, and extreme, case. The key differentiating prediction between models is the slope of firm size-wage premium. Consistent with near-zero net markdowns, the empirical firm size-wage premium is very small in Danish administrative data. We explore two exceptions to the zero net markdown result: (i) small, low productivity firms survive by exploiting static monopsony power over a small pool of loyal workers, and (ii) large firms strategically consider their effect on market wages and tightness. We conclude that significant profits from wage setting power accrue only to firms that are sufficiently large and act strategically. Minimum wages have limited reallocation effects due to large firms' incentive to under-post vacancies but can have beneficial employment effects by decreasing aggregate turnover.