Essays on the Macroeconomics of Labor Markets

Abstract

This dissertation studies the macroeconomic implications of the reallocation of workers within and between labor markets. Chapter 1 starts from the fact that unemployment rates differ widely across local labor markets. I document that high local unemployment follows from elevated local job losing rates, even for similar workers. I then propose a theory in which spatial differences in job loss arise endogenously through the location decision of employers. Labor market frictions distort the latter, providing a rationale for commonly used place-based policies. The estimated model accounts for the cross-sectional dispersion in unemployment rates and the key role of job loss. Finally, I show that both real-world and optimal place-based policies yield sizable welfare gains at the local and aggregate level.

Chapter 2, joint with Esteban Rossi-Hansberg, then investigates the individuals’ location decisions in more depth. We argue the location choice of individuals resembles investing in a location asset. This asset costs the locations rent, and a pays off better job and schooling opportunities. Savers go to expensive locations with good future opportunities. Borrowers go to cheap locations that offer few other advantages. The location asset is used by credit constrained individuals. We provide an analytical model to make this idea precise and to derive a number of related implications, that we confirm with French individual panel data from tax returns.

Chapter 3, joint with Niklas Engbom, Simon Mongey and Gianluca Violante, finally studies how the allocation of workers across firms in the aggregate labor market affects aggregate productivity. We develop a frictional labor market model with firm and worker dynamics. Multi-worker firms choose whether to shrink or expand in response to shocks to their decreasing returns to scale technology. Growing entails posting vacancies, filled either by the unemployed or by employees poached from other firms. Tractability is obtained by proving that all workers and firms’ decisions are characterized by productivity and size. The estimated model yields empirically consistent cross-sectional patterns of net poaching, and rationalizes U.S. labor market dynamics around the Great Recession.