R&R at Review of Economic Studies
We study the firm-level and aggregate effects of government-imposed employment targets. We develop a dynamic general equilibrium model with heterogeneous firms and endogenous productivity growth in which penalties for below-target hiring generate a polarization mechanism: low-productivity firms exit, while others expand employment beyond efficient levels, and firms invest in productivity to avoid future penalties. We test and confirm the model’s firm level predictions using unique contractual data on more than 18,000 employment commitments from the East German privatization, exploiting quasi-random variation in the assignment of privatizers to firms. Quantitatively, employment targets reduce unemployment in the short run, but these gains reverse over time as distorted labor allocations and weakened investment incentives slow aggregate productivity growth and reduce welfare. We also evaluate how alternative designs for employment-protection (e.g., the choice between mandates and subsidies, the structure of targets) impact misallocation and the resulting short- and long-run outcomes.
We examine how connections to German federal parliamentarians influence firm dynamics using a novel dataset linking politicians and election candidates to the universe of firms. To identify the causal effects of political access, we exploit (i) new appointments to the company leadership team and (ii) discontinuities around the marginal seat of party election lists. Results reveal that political connections reduce firm exits and gradually increase employment growth, with heterogeneous productivity effects depending on the political mandate. Incorporating data on credit ratings, subsidies, and procurement contracts allows us to identify the mechanisms driving the effects over the politician’s career.
This paper provides new causal evidence on how patent allowances affect firms and their employees based on quasi-random assignment of patent applications to examiners. Exploiting employer–employee records with newly linked German firm data and web-scraped patent documents, we show that patent-induced shocks reduce firm exit, improve productivity, and increase wages, with rent-sharing elasticities between 0.10 and 0.21. Wage gains are broadly observed across occupational tasks, with high heterogeneity: managers benefit disproportionately in publicly traded firms, whereas broader wage increases accrue to workers in non-traded firms. Our findings highlight the role of institutional features and firm organization in shaping how rents are shared.
We revisit the employer size wage effect (ESWE)---arguably the most basic and influential departure from the law of one price for labor. Our main result is that this canonical fact disappears completely across establishments within the same firm, even though they operate in different local labor markets. We uncover and dissect this fact by including a firm fixed effect in otherwise standard cross-sectional regressions of wages on establishment size. This demanding specification is new to the ESWE literature (for which we also provide the first systematic meta-analysis) because it requires population-wide triple-merged firm-establishment-employee data, which we obtain for Germany. This wage-size decoupling is hard to square with the view that employment is determined along a finitely elastic firm-specific labor supply curve---i.e., employers pay exactly the minimum needed for the quantity of labor, but no more---the foundation of the monopsony view. By contrast, large multi-establishment employers evidently hire off their labor-supply curves (or those curves are very elastic), pay wage premia above the monopsonistic minimum, and leave excess labor supply. Overall, at least for the 25% of German employment in large firms for which the ESWE disappears, wage setting and employment determination require alternative models able to rationalize non-market-clearing wage premia and labor supply rationing, such as efficiency wage theories.