How do firms respond to demand shocks? I approach this fundamental question from a novel perspective by leveraging two firm-level datasets that provide a uniquely detailed opportunity to examine how employers react to changes in the demand for their output. Specifically, this paper combines linked employer-employee administrative records for a subset of U.S. firms from ADP, LLC with a comprehensive database of transactions from the American Recovery and Reinvestment Act (ARRA), which appropriated $275 billion in purchases of goods and services during the Great Recession. Utilizing a matched difference-in-differences strategy as well as exploiting heterogeneity in both the timing and the magnitude of these purchases, I compare firms that received ARRA funds to a counterfactual sample of employers that were not directly connected to the Recovery Act. I find that companies which experienced these demand shocks responded by increasing both employment and wages relative to their counterparts. Furthermore, the magnitudes of these changes suggest that the labor supply to an individual firm is relatively inelastic, even in a deep recession, and provide evidence of monopsonistic wage-setting in U.S. labor markets.
We estimate the causal effects of heroin use on labor market outcomes by proxying for heroin use with prior exposure to oxycodone, the largest of the prescription opioids with a well-documented history of abuse. After a nationwide tightening in the supply of oxycodone in 2010, states with greater prior exposure to oxycodone experienced much larger increases in heroin use and mortality. We find increases in heroin use led to declines in employment and labor force participation rates, particularly for white, young, and less educated groups, consistent with the profile of oxycodone misusers. The results show the importance of extending beyond prescriptions when accounting for the labor market effects of the opioid crisis.
Long-term transition rates calculated from the Current Population Survey, the Survey of Income and Program Participation, and Rutgers University’s Work Trends Survey indicate that the long-term unemployed have a 20 to 40 percent lower probability of being employed 1 to 2 years in the future than do the short-term unemployed. In comparison with the short-term unemployed, for the long-term unemployed the job finding rate is less sensitive to the state of the business cycle, but their labor force withdrawal rate is more procyclical. A calibration exercise finds that the tendency of the labor force withdrawal rate of the long-term unemployed to decline in a recession and then rise in a recovery plays an important role in the well-documented loop around the Beveridge curve. Overall, the results suggest that the longer workers are unemployed, the less attached they become to the labor market.
This study investigates the extent to which economic rents are shared among different types of workers within firms. We utilize administrative payroll records in order to estimate the elasticity of employee compensation with respect to the price of crude oil at petroleum extraction companies. We find that the elasticity of rent sharing is heterogeneous within firms and significantly higher for workers at the top of the earnings distribution. These results can be rationalized by a bargaining model in which insiders within a firm possess greater power to negotiate over wages.
The Paycheck Protection Program (PPP) provided small businesses with roughly $800 billion dollars in uncollateralized, low-interest loans during the pandemic, almost all of which will be forgiven. With 94 percent of small businesses ultimately receiving one or more loans, the PPP nearly saturated its market in just two months. We estimate that the program cumulatively preserved between 2 and 3 million job-years of employment over 14 months at a cost of $169K to $258K per job-year retained. These numbers imply that only 23 to 34 percent of PPP dollars went directly to workers who would otherwise have lost jobs; the balance flowed to business owners and shareholders, including creditors and suppliers of PPP-receiving firms. Program incidence was ultimately highly regressive, with about three-quarters of PPP funds accruing to the top quintile of households. PPP's breakneck scale-up, its high cost per job saved, and its regressive incidence have a common origin: PPP was essentially untargeted because the United States lacked the administrative infrastructure to do otherwise. Harnessing modern administrative systems, other high-income countries were able to better target pandemic business aid to firms in financial distress. Building similar capacity in the U.S. would enable improved targeting when the next pandemic or other large-scale economic emergency inevitably arises.
The Paycheck Protection Program (PPP), a principal element of the fiscal stimulus enacted by Congress in response to the COVID-19 economic shock, was intended to assist small businesses to maintain employment and wages during the crisis, as well as cover other expenses. We use high-frequency administrative payroll data from ADP—one of the world’s largest payroll processing firms—to estimate the causal effect of the PPP on the evolution of employment at PPP-eligible firms relative to PPP-ineligible firms, where eligibility is determined by industry-specific firm-size cutoffs. Our estimates indicate that the PPP boosted employment at eligible firms by between 2 percent to 5 percent at its peak effect around mid-May 2020. The boost to employment waned thereafter and ranged from no effect to a 3 percent boost at the end of 2020. Our estimates imply that employers retained an additional 3.6 million jobs as of mid-May 2020, and 1.4 million jobs at the end of 2020, as a consequence of PPP. The estimated cost per year of employment retained was $169,000 to $258,000, equal to 3.4 to 5.2 times median earnings.