Essays in Macroeconomics

Abstract

This dissertation consists of two chapters. In the first chapter,I examine how the business cycle impacts the average quality of an employer-employee match. I study a model of the labor market with on-the-job search, aggregate uncertainty, and heterogeneous match qualities. Two opposing theories are tested: the cleansing effect, whereby the low quality matches are destroyed during recessions, and the sullying effect, whereby firms post fewer vacancies during recessions and workers have fewer opportunities to move up the job ladder. I find that the sullying effect dominates and that average match quality is procyclical due to increased hiring out of unemployment during recessions. I extend the model to allow for an exogenous minimum wage and show that neglecting to account for the cyclicality of match qualities can lead to miscalculating the effects of the policy. In the second chapter, I study imperfect competition in the labor market and human capital accumulation. A number of influential papers study monopsony power in static models. Among the papers that model dynamics with a finite number of firms, none model the process of human capital accumulation by workers. In this chapter, I show that this has important implications for the measurement and welfare consequences of monopsony power. How large are properly measured markdowns? And what are the welfare gains of implementing competitive allocations once we have accounted for human capital accumulation? To answer these questions, I introduce a novel model of dynamic monopsony in which a large non-atomistic firm competes with a finite number of homogeneous firms for workers who learn on-the-job.The markdown has an additional dynamic term reflecting expected future changes in worker human capital. I estimate the model using rich matched employee-employer administrative data from France and find that the welfare gains from forcing firms to offer workers their marginal product are large. Moreover, the welfare losses are underestimated by 81% when ignoring human capital accumulation.