Essays on How Employment Responds to Markups, Investment, and Trad

In the first chapter, I study the cyclicality of firm size distribution and its effect on aggregate fluctuations through markup variation. The evolution of firm size distribution has consequences for the degree of competition between firms over the business cycle, which, in turn, offers a basis for dynamics in aggregate markup. I provide empirical evidence on the counter-cyclicality of the firm size distribution using plant-level data. To quantify the effect of this evidence on aggregate fluctuations, a model of imperfect competition is constructed in which final goods consist of a continuum of industry goods, while each industry has a few firms. Firms take into account the effect of their own pricing on the price of industry goods. Aggregate markup, which equals the input-share weighted average of firm markups, is an increasing function of market share inequality. Numerically, I find that the counter-cyclical firm size distribution, which is driven by counter-cyclical relative productivity, makes aggregate labor more pro-cyclical compared to a constant markup economy.;While a great deal of research has studied the adjustment of individual factors of production, relatively little work has focused on investigated their joint dynamics at the plant level. The second chapter uses plant-level data from two countries to document the joint adjustment of capital and employment. The data are analyzed based on a model of costly multi-factor adjustment that integrates features from canonical models of dynamic capital and labor demand. The model predicts that investment ought to perfectly coincide with employment growth. In contrast, 42 percent of gross capital accumulation occurs at plants (in and years) which record employment losses. The paper then discusses a number of extensions to the baseline model, but these do not provide satisfactory accounts of the data. The most promising extension is one in which the production function is modified to enable machinery to directly replace labor in certain tasks.;The last chapter deals with the specific issue of international trade. The share of imports in domestic expenditure, is a common measure of the intensity of import competition in the literature examining the impact of trade on the U.S. labor market. Bernard, Jensen and Schott (2006) partition imports into two types, those originating from low-wage countries and those from the rest of the world. They show that industries with a high level of import penetration from low-wage countries tend to reduce employment in the future. Based on their work, I investigate the suitability of import penetration as a proxy for increased import competition. Using U.S. manufacturing industry data, I show that the level of import penetration, regardless of source country, does not predict future movements in import flows. Furthermore, in a replication of their work, the negative effect of low-wage imports on labor demand disappears after including industry-specific trends. Instead of using import penetration ratios as a direct proxy, I rely on several instrumental variable approaches to investigate this question. Unlike Bernard, Jensen and Schott (2006), my results do not indicate a negative effect on employment from import competition.