Essays in Macroeconomics and Labor Supply
In this dissertation, I study the role of labor supply in macroeconomic fluctations and the movement of employment in response to these fluctuations. The first chapter is a theoretical and empirical study of the role of firm-specific labor supply in amplifying business cycles. The second chapter focuses on measuring the aggregate labor supply elasticity at the extensive margin, using a novel survey approach. Finally, in the third chapter I measure the effects of government policies in the early stages of the COVID-19 pandemic on employment, using decentralized implementation of these policies.
In the first chapter, I assess the role of labor market monopsony---finitely-elastic firm-specific labor supply---in the context of a New Keynesian model. First, I modify a basic New Keynesian model to include firm-specific labor and calibrate the labor supply elasticities to micro-empirical estimates. Consistent with this mechanism serving as a source of real rigidity, firm-specific labor substantially reduces the slope of the Phillips curve relative to the perfectly competitive labor market benchmark. However, this depends strongly on the elasticity chosen, and requires distinguishing the firm-specific and aggregate labor supply elasticities, which previous work often fails to do. Second, I provide a cross-sectional empirical test for this mechanism. I estimate the firm-specific labor supply elasticity by industry in the Survey of Income and Program Participation using a dynamic monopsony model. I then estimate industry responses to monetary policy shocks. Contrary to the New Keynesian model, I find no evidence that industry differences in firm-specific labor supply elasticities lead to different industry price responses to monetary policy shocks. My results do not support the theory that firm-specific labor is a source of real rigidity.
The second chapter is an innovative investigation into measuring the aggregate labor supply curve using survey methods. I measure extensive-margin labor supply (employment) preferences in two representative surveys of the U.S. and German populations. In the survey, I elicit ``reservation raises'': the percent wage change that renders a given individual indifferent between employment and nonemployment. It is equal to their reservation wage divided by their actual, or potential, wage. The reservation raise distribution is the nonparametric aggregate labor supply curve. Locally, the curve exhibits large short-run elasticities above 3, consistent with business cycle evidence. For larger upward shifts, arc elasticities shrink towards 0.5, consistent with quasi-experimental evidence from tax holidays. Existing models fail to match this nonconstant, asymmetric curve.
Finally, in the third chapter, I investigate the labor market ramifications of government-imposed lockdowns in the early stages of the COVID-19 pandemic. I use the high-frequency, decentralized implementation of Stay-at-Home orders in the U.S. to disentangle the labor market effects of SAH orders from the general economic disruption wrought by the COVID-19 pandemic. I find that each week of SAH exposure increased a state's weekly initial unemployment insurance (UI) claims by 1.9% of its employment level relative to other states. A back-of-the-envelope calculation implies that, of the 17 million UI claims between March 14 and April 4, only 4 million were attributable to SAH orders. I present a currency union model to provide conditions for mapping this estimate to aggregate employment losses.