UCLA

This dissertation consists of three chapters. Chapter 1 presents new empirical evidence and a theoretical framework, which suggests that firing costs impede human capital accumulation within firms. To that end, I investigate the impact of a German reform in 2004 that removed firing costs exclusively for smaller establishments. Applying a difference-in-differences approach to administrative matched employee-employer data, I find that the targeted smaller establishments experienced an increase in the proportion of employees participating in training compared with others. To clarify the underlying mechanism and quantify the aggregate effect of the reform, I develop an on-the-job search model with human capital and firing costs. Reducing firing costs in this model stimulates job creation by firms, and thereby increases the probability of workers transitioning to firms in which their skills are more valuable. This encourages workers to accumulate human capital. The calibrated model suggests that the German reform could result in a 0.58% increase in aggregate productivity, with 0.49% attributed to human capital accumulation and the rest to more efficient resource allocation.

Chapter 2, which is co-authored with Yasutaka Koike-Mori and Koki Okumura, develops an endogenous growth model that incorporates on-the-job search and examines the allocation of inventors across firms, knowledge diffusion, and its impact on growth. In our model, inventors play dual roles: they engage in in-house R&D and transfer knowledge from previous employers to new ones when changing jobs. Using an administrative panel dataset on German inventors matched to their employing establishments and patents, we find that, relative to general workers, inventors are more likely to transition to less productive establishments and suffer a higher wage growth via the transition. We also find that the knowledge base of establishments measured by patents grows faster when a significant proportion of their inventors originate from establishments possessing a larger knowledge base. We then calibrate the model to reflect these empirical findings and examine the effects of innovation policy. While subsidies to frontier firms discourage knowledge diffusion from these firmsto technologically lagging firms, these subsidies also encourage innovation within frontier firms. The former negative effect dominates in the short term, but the latter positive effect dominates in the long run.

Chapter 3, which is co-authored with Tomohide Mineyama, estimates the user cost of labor (UCL) - an allocative labor cost measure used in analyzing economies with ongoing employment relationships—while controlling for cyclical changes in job-match quality, which has been identified as a potential problem in previous studies. We use a novel dataset that exploits school (nonemployment)-to-employment flows to control for this measurement problem. The estimated UCL remains highly procyclical after making this correction, with an estimated wage semi-elasticity of 2.69 with respect to a one percentage point change in the unemployment rate. The semi-elasticity is around twice as large as that of the new-hire wage. We also find that the corrected UCL cyclicality is asymmetric, with the UCL rising in booms but remaining flat in downturns. To account for this asymmetry, we develop a directed search model with asymmetric information in which firms use wages as a screening tool to receive applications from targeted workers. The model economy generates asymmetric labor market dynamics that are consistent with the data.