Essays on the Determination of Employment and Wages

Abstract

This collection of essays investigates the determination of employment and wages.

Chapter 1 explores how firms respond to changes in the demand for their output by comparing employers from which purchases were and were not made through the American Recovery and Reinvestment Act of 2009. This analysis finds that companies responded to these demand shocks by increasing both employment as well as wages during the Great Recession. Taken together, these equilibrium labor market outcomes provide evidence of widespread and substantial monopsony power among employers in the United States.

Chapter 2, which is co-authored with Alan B. Krueger, examines the extent to which economic rents are shared among different types of workers within a given company by utilizing the price of crude oil as an instrument for the productivity of petroleum extraction firms in the United States. This study demonstrates that the elasticity of wages with respect to exogenous shocks to productivity can be heterogeneous throughout a firm. Notably, we find that workers at the top of the earnings distribution tend to possess greater bargaining power over wages relative to their lower paid counterparts.

Chapter 3, which is co-authored with both Alan B. Krueger as well as Judd N. L. Cramer and was published in the Spring 2014 issue of the Brookings Papers on Economic Activity, considers the labor market outcomes of workers who become long-term unemployed in the United States. Our results suggest that unemployed workers’ attachment to the labor force generally declines as their duration of joblessness rises. Furthermore, we demonstrate that the nonparticipation of long-term unemployed workers is a critical component of the cyclical patterns in the labor market that have traditionally been observed over the course of the business cycle.