ESSAYS ON FIRMS AND LABOR MARKETS

Abstract

In this dissertation I examine how macroeconomic conditions and government policies shape individual and collective economic behaviors in entrepreneurship and the U.S. labor market. I examine how financial constraints affect business formation along with the role government policies play in supporting entrepreneurial ventures. Then I analyze the changes in labor supply directly following the Covid-19 pandemic.

My first chapter, "The Effect of Rising Higher Education Costs on Business Formation,'' examines the effect of increases in tuition on entrepreneurship. Between 2000 and 2014, yearly real average college tuition increased by 31% while the average student loan balance increased by 21%. I use administrative data to examine how an increase in the cost of higher education affects the likelihood of forming a business after graduation. I instrument for realized tuition by exploiting the variation in total four-year tuition due to differences in the length of exposure to increased tuition between students in different enrollment years at universities that experienced a large “sticker price” tuition shock. I find that for every $10,000 increase in tuition there is a 3.0 percentage point (41 percent) decrease in the likelihood of being an owner or early joiner of a business. This decline is 7.8 percentage points larger for individuals at universities that have larger student loan balances and 4.1 percentage points higher for individuals with parents who did not complete college. The negative effect on business formation does not exist for students attending universities with more generous financial aid. These results suggest that increasing higher education costs are deterring recent graduates from engaging in entrepreneurial activity.

In my second chapter, "After the Storm: How Emergency Liquidity Helps Small Businesses Following Natural Disasters'', co-authored with Benjamin Collier and Sabrina Howell, we study whether emergency credit prevents long-term financial distress from severe climate events. We study the causal effects of government-provided recovery loans to businesses following natural disasters. These modestly subsidized loans could enable firms to survive and grow. Alternatively, they might prop up firms that should exit, or crowd out private lenders. We show that the loans reduce exit and bankruptcy, increase employment and revenue, unlock private credit, and reduce delinquency. These effects, especially the crowding-in of private credit, appear to reflect resolving uncertainty about repair. We do not find credit reallocation away from neighboring firms and see some evidence of positive spillovers on local entry.

In my final chapter, "Where are the missing workers? Anticipated and unanticipated labor supply changes in the pandemic’s aftermath,'' co-authored with Katharine G. Abraham, we quantify the changes in labor supply in the two years following the Covid-19 pandemic. Labor force participation and average hours of work both fell sharply at the beginning of the COVID-19 pandemic. Neither had fully recovered by the end of 2022. The drop in participation between December 2019 and December 2022 implies a loss of 3 million people from the labor force; the decline in average hours over the same period translates to the equivalent of 2.6 million fewer workers. Demographic and other trend factors that pre-dated the pandemic explain most of the participation shortfall. Taken together, COVID-19-related health effects and the persistent (though shrinking) effects of the fear of contracting COVID-19 more than explain the rest. In contrast, pre-pandemic factors account for little of the shortfall in hours. COVID-19-related health effects account for perhaps 40 percent of that decline, but we are unable to explain the majority of the hours shortfall. We speculate that the lower level of hours in the post-pandemic period may reflect a shift in the desired balance between work and other aspects of workers’ lives.