Research

Does Unemployment Insurance (UI) affect employed workers’ propensity to find new and different jobs? If so, how do these responses influence the costs of providing UI? To answer these questions, I combine a regression kink design (RKD) with predicted unemployment risk using rich Norwegian administrative data. My data covers the universe of workers in Norway, their tax filings, and detailed information on their employers, including corporate bankruptcy filings. I find that a one percent increase in benefits lowers the annual probability of a job-to-job transition by 0.2 percent. This average effect is driven by workers with high predicted unemployment risk, and the reduction in job mobility increases the inflow of workers into unemployment. Despite this adverse effect on employment, the negative earnings effect is modest, and I find no effects on other measures of job quality. I rationalize these findings by showing how the effect on job quality can be decomposed into two opposing forces in a standard on-the-job search framework: (i) UI leads workers to seek better jobs, but (ii) increases the likelihood of future unemployment. I propose a new method to quantify the relative importance of these two forces from reduced-form estimates. Finally, I estimate how the changes in mobility and job outcomes affect net costs of providing UI. Using data on benefits received and taxes paid, I find that for each dollar increase in benefits, the government must pay an additional 50 cents because of these behavioral changes. About 80 percent of this cost stems from the increased flow from employment to unemployment – a margin typically omitted in the empirical literature on optimal UI.

 Presentations: Nordic Summer Symposium in Macroeconomics (August 2022), Society of Labor Economics (SOLE) May 2023

We use a unique data set of individual transaction histories from Norway to show that temporary shocks to the buyer-to-seller ratio (or market tightness) caused by the transaction sequence decisions of moving homeowners – whether to buy first and then sell or vice versa – impact house prices. Using a novel shift-share IV design motivated by a simple theoretical model, we estimate that a 1 percentage point increase in the aggregate buy-first share causes house prices to increase by around 0.5 percent, time-to-sell to decrease by around 5 percent, and market tightness to increase by around 12 percent more in a local housing market that has a one standard deviation higher share of locally moving owners. Our empirical strategy allows us to estimate an elasticity of price to market tightness of around 0.1 and an elasticity of matching with respect to buyers of 0.6.

How important are the fortunes of the firm to the chief executive officer (CEO), and how do executive labor market frictions shape the career outcomes of displaced CEOs? While important for assigning CEOs to firms and aggregate growth, answering these questions has been confounded by the challenges of measuring displaced CEOs’ career trajectories and the likely overrepresentation of low-performing CEOs in troubled firms. We overcome these challenges by combining the random assignment of judges to bankruptcy cases with rich administrative data from Norway. Using an instrumental variable approach, we document long-lasting career effects for CEOs separating from their firms in bankruptcy. Displaced CEOs experience a 30 pp decline in the likelihood of remaining in the executive labor market, a temporary fall in labor earnings, and a persistent near elimination of capital income. At the same time, we find that CEOs’ skills are portable, as they quickly find new employment, exhibit high industry mobility, and move to higher-paying firms, although in lower-ranked positions. Consistent with firm-specific skills and informational asymmetries, we find occupational displacement effects are larger for CEOs with longer tenure in the firm and when intra-industry bankruptcy rates are low rather than high. Overall, our evidence suggests that bankruptcy experience is inefficiently used as a signal of managerial ability distorting corporate risk-taking and the assignment of CEOs to firms.

Presented at: The Financial Intermediation Research Society (FIRS) 2022, 29th Finance Forum 2022, European Finance Association 2022