Research

Abstract: Over the last 40 years, job-to-job mobility of workers has substantially decreased, altering the distribution of workers' tenure within the firm. In this paper I show that this change in workers' tenure affects the responsiveness of wages to the profitability of the firm as measured by value-added (i.e., the difference between revenue and cost of goods sold). Using matched worker-firm data from Norway, I estimate rent-sharing elasticities—which measure the percentage change in the worker's wage corresponding to a one percentage change in the firm's value-added—by using internal panel instruments and show that there is substantial heterogeneity in the response of workers' earnings to changes in firms' value-added by worker tenure. Over twenty years of tenure, the estimated rent-sharing elasticity declines by approximately 50 percent. Shorter-tenured workers are also more likely to experience separations as a result of the change in value-added. I show that these differences cannot be explained by selection on observable characteristics in the sample of long-tenured workers. To quantify the role of unobserved differences in skill and worker mobility by tenure, I develop a model with firm-specific human capital, on-the-job search, bargaining over match surplus, and firm-level shocks to productivity. I find that the pressures of firm-specific human capital and resulting differences in workers' mobility by tenure—due to differences in the opportunity cost of leaving the firm—can account for approximately 20 percent of the decline in the rent-sharing elasticity.

Abstract: Standard models of labor market frictions often assume that separations occur passively following negative firm-level shocks. However, emerging evidence indicates that workers undertake anticipatory job search to insure against the costs associated with layoff, implying that income risk information can affect both the incidence of layoffs and the costs of distress. In this paper, we assess the employee costs of bankruptcy—a salient firm-level shock. To this end, we use random assignment of bankruptcy judges as an instrument for liquidation, and administrative records on employment and earnings to estimate the causal effects of bankruptcy on worker mobility and income. We find that liquidation reduces earnings by 24 percent over five years, despite one-fourth of affected employees exiting beforehand. Worker reallocation varies substantially across labor market conditions and firm wage levels, with greater reallocation from high-wage firms, particularly during strong labor market conditions. Using a structural model of job search, we find that workers value the insurance provided by job search at approximately fifteen percent of their annual salary. Our findings show that information about financial risks improves labor markets' ability to absorb firm-level shocks.

Abstract: How does hours mismatch affect labor supply responses to annual taxes? While hours may be more indivisible in some industries, higher volatility of work opportunities in more flexible jobs may affect workers' ability to anticipate tax liabilities at year-end. In this paper, we show theoretically that hours constraints can induce workers to stop working mid-year as their cumulative taxable income creeps into a new tax bracket. We develop an approach that identifies the intertemporal extensive margin response non-parametrically using data on monthly work decisions and cumulative income. We apply this approach to annual kinks and monthly earnings data in the Norwegian tax and transfer system and find that the labor force participation elasticity is 0.8 for low- but less than 0.1 for high-earners. We relate the missing mass of work to excess mass of year-end earnings at the kink, finding that 60% of optimizing low-earners are subject to indivisible hours. Our evidence helps explain the divergence between macro- and micro evidence on intertemporal participation elasticities, supporting the view that marginally attached workers are important drivers of workforce participation over the business cycle.