Knowledge that Transforms

We develop, identify, and estimate a model of imperfect competition in both labor and product markets. Our context is the US construction industry, where firms compete for workers, private market projects, and government procurements. Our empirical approach leverages bidding data from procurement auctions linked to employer-employee tax records. We find imperfect competition in both markets generates a total wage markdown of more than 30 percent and a total price markup of around 45 percent. By contrast, if one erroneously assumed a perfectly competitive product (labor) market, then one would conclude wages (prices) are marked down (up) by only 20 percent (16 percent).

Using data from over 100 US retirement plans and a representative UK panel, I document the impact of auto-enrollment (AE) on retirement savings at different horizons. I replicate the impact of AE on participation and contributions in the short run (at 12 months), but I show that these gains are attenuated over the medium run (at 36 months). At this longer horizon, the average savings increases are modest, though AE significantly lowers inequality in savings. To assess AE’s lifetime impact, I estimate a life cycle consumption-savings model that can fit the observed patterns with a switching cost of approximately $250, smaller than previous estimates.

We investigate long-run earnings responses to taxes in the presence of dynamic returns to effort. First, we develop a theoretical model of earnings determination with dynamic returns to effort. In this model, earnings responses are delayed and mediated by job switches. Second, using administrative data from Denmark, we verify our model's predictions about earnings and hours-worked patterns over the life cycle. Third, we provide a quasi-experimental analysis of long-run earnings elasticities. Informed by our model, the empirical strategy exploits variation among job switchers. We find that the long-run elasticity is around 0.5, considerably larger than the short-run elasticity of roughly 0.2.

For globally systemically important banks (GSIBs) with US headquarters, we find significant reductions in market-implied probabilities of government bailout after the Global Financial Crisis (GFC), along with roughly 170 percent higher wholesale debt financing costs for these banks after controlling for insolvency risk. Since the GFC, bank creditors appear to expect much larger losses in the event that a GSIB approaches insolvency. In this sense, we estimate a decline of “too big to fail.” (G01, G12, G21, G28, G33, H81)