Essays On Firm-Level Distortions And Aggregate Productivity
This thesis focuses on how the frictions at the firm-level production decisionsimpact aggregate productivity. The first chapter quantifies the impact of trade secret protection on labor outsourcing, and consequently, on aggregate productivity. First, using event studies and differences-in-differences around the staggered adoption of the Uniform Trade Secrets Act, I show that better trade secret protection leads to increased outsourcing. Second, to quantify the resulting gains in productivity, I build a structural model of outsourcing and multi-industry dynamics and estimate it with data from the U.S. manufacturing sector. I decompose the cross-state differences in labor outsourcing into differences in firing cost, industry composition, demand volatility, and trade secret protection. Strengthening trade secret protection for all states to match the state with the strictest protection would increase the outsourcing employment by 29% and aggregate output by 0.8%. The second chapter studies the role of information frictions by measuring how the informativeness of the stock prices changes with business cycles. We first build a stock market model in which both the information content and the noise in prices respond to changes in economic activity, affecting how well those prices reflect firm’s performance. Then we incorporate this module in a dynamic model with heterogeneous firms to characterize how stock price informativeness and capital misallocation interact with one another. We find that an increase in liquidity concerns can simultaneously boost information production, decrease stock price informativeness, and increase capital misallocation. The third chapter examines the strong positive correlation between job-to-job transition rates and nominal wage growth in the U.S. First, using time series regressions, structural monetary policy shocks, and survey data on search effort we provide evidence that inflationary shocks cause higher job-to-job transitions in the subsequent years. Second, we build a model with aggregate shocks and competitive on-the-job search in which wages react sluggishly to inflation. Third, we calibrate the model to the U.S. economy and find that the output response to inflation shock is nonmonotonic. The monetary authority can stimulate productivity with an inflationary shock through job-to-job transitions.