Firms, Wage-Setting, and Employment Dynamics
Paper Session
Sunday, Jan. 5, 2025 1:00 PM - 3:00 PM (PST)
- Chair: Samuel Young, Arizona State University
The Distributional Effects of Firm Demand Changes: Evidence from U.S. Linked Worker-Owner Data
Abstract
This paper estimates the economic incidence of firm-level demand changes. We link U.S. tax and survey data to identify private firms’ workers and owners and measure the total income they receive from the firm. We analyze two types of firm-level demand shocks: changes in export product demand and idiosyncratic variations in value-added. The incidence of these shocks—which individuals gain or lose—is highly skewed. Individuals in the top 1% of the income distribution receive up to 60% of incidence, while those in the bottom 50% receive less than 15%. The reason for this unequal distribution is that firm owners bear most of the incidence and are frequently in the top of the distribution. Since owners are also disproportionately male and white, these groups also receive a large share of the incidence. Moreover, the incidence is asymmetric for positive versus negative demand changes. While workers receive a small share of the benefits of positive shocks, they bear a larger share of the losses from negative shocks. These findings suggest that the incidence of several firm-level government policies is highly unequal. Additionally, the asymmetry result presents a puzzle for standard models of rent-sharing and firm insurance, which predict symmetric responses to positive and negative demand changes.Labor and Product Market Power, Quality of Care, and the Consolidation of the U.S. Hospital Industry
Abstract
In recent years, the US hospital sector has experienced a massive wave of consolidation, as more than 1,000 hospital mergers and acquisitions have concentrated local markets. This paper analyzes, both theoretically and empirically, how hospitals have leveraged their simultaneous gains in market power over patients and employees. Our comprehensive panel dataset on the universe of inpatient hospitals in the US combine hospital-level balance-sheet and employment records, system-level ownership linkages, and patient satisfaction surveys. Empirically, we find that hospitals not only raised prices and lowered wages after consolidating, but also reduced the number of patients treated, the number of workers employed, and the quality of care provided to each patient. To interpret these findings, we develop a novel framework for merger evaluation in which firms face both a downward-sloping product demand curve and an upward-sloping labor supply curve. The model shows how price markups and wage markdowns jointly respond to concentration gains in both labor and product markets. We also model the endogenous choice of the quality of patient care, demonstrating how gains in labor market power distort the trade-off between the prices paid by and quality provided to patients. After estimating the key model parameters, we measure the combined welfare losses due to hospital mergers operating not only through higher prices and lower wages but also through worsening patient care and reduced employment. Lastly, we show how our estimated model could be used to guide ex-ante merger review by predicting the harms of potential hospital mergers based on pre-merger characteristics of the relevant markets.Why Firms Lay Off Workers Instead of Cutting Wages: Evidence From the Linked Survey-Administrative Data
Abstract
We use a novel large-scale survey of firms, linked to administrative data, to study why firms lay off workers instead of cutting wages. Our questions on layoffs, wage cuts, and the link between layoffs and wage cuts provide new insights into firms’ strategies for adjusting labor in response to adverse shocks. We find that layoffs are more prevalent than wage cuts, but wage cuts are not rare in the firms experiencing revenue reduction and were used by 15% of such firms. Wage cuts are not more prevalent because they do not appear to employers as an alternative to layoffs in many instances. First, lowering wages triggers costs in terms of productivity of the entire firm’s workforce via impact on morale and quits; firms compare these costs with potential savings from wage cuts. Most employers in the survey agree that a wage reduction would not have saved jobs. Second, layoffs during recessions happen for various reasons, with more than half of firms reporting reasons other than a contemporaneous negative shock. An economic crisis is an opportune time for layoffs due to, for example, lower opportunity costs of restructuring, as well as because, from the behavioral perspective, layoffs in a crisis are considered fairer by workers. We find that firms that report such opportunistic layoffs are less likely to implement wage cuts.JEL Classifications
- J3 - Wages, Compensation, and Labor Costs
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy