Online Location, Online
June 09, 2021, 01:00 PM to 03:00 PM
Centered in the field of applied macroeconomics, in this dissertation, I contribute to three open puzzles in the macro literature. First, I address the question of “jobless recoveries” and their cause, demonstrating the importance of human capital heterogeneity of the unemployed. Second, I examine the drastic decline in research & development (R&D) in the early 1970s, linking the change to the Nixon Shock and the ensuing uncertainty. Third, I construct a holistic, yet heterogeneous, model of merger and acquisition (M&A) activity in the United States (US) and provide robust evidence of bias in the current literature. Together, these three essays shed light on significant puzzles in the literature, advancing the understanding of economics in three distinct areas.
In the first chapter, I investigate the jobless recovery enigma. As a special case of broader unemployment, the term “jobless recovery” describes an economic recovery where output recovers—and even expands—yet employment growth remains anemic. While the effects of these prolonged recoveries are significant, they are not well understood. Building on the insights of labor market matching models that incorporate heterogeneity among workers, this paper uncovers the underlying dynamics of jobless recoveries, develops a first-of-its-kind index of human capital heterogeneity for the unemployed, and tests that index using a Structural Vector Autoregression. I demonstrate that the extent to which unemployed human capital is heterogeneous and specific, rather than homogeneous and general, plays a key and under-appreciated role in the labor market; increases in human capital heterogeneity can account for between half to three-quarters of the joblessness of the past two recoveries in the pre-COVID era.
In the second chapter, I explore the impact of the Nixon Shock on irreversible investments, specifically, how the uncertainty of the times affected R&D. Richard Nixon’s action ending the convertibility of dollars for gold on August 15, 1971, marked a historic break in US monetary policy. We know retrospectively that Nixon’s action was followed by decades of above-trend inflation, but did his action have short-run impacts? I demonstrate that one immediate effect was increased policy uncertainty, and I measure its impact on private R&D. Because R&D’s returns depend heavily on future market and government stability, policy uncertainty should discourage R&D expenditures. With an interrupted time-series design, I examine private R&D trends prior and subsequent to the Nixon Shock, concluding that uncertainty induced by this event accounts for at least one-fifth and possibly up to one-half of a standard deviation decline in the quantity of R&D by private organizations.
In the third chapter, I explore common models of M&A determinants. Though mergers and acquisitions comprise a significant share of aggregate economic activity in the US, researchers disagree on the effect and importance of M&A determinants. Such disagreement stems from adherence to disparate theoretical models that preclude the use of significant explanatory variables. This paper contributes to the scattered literature by demonstrating the presence of significant bias in the most common approaches to this question. Comparing the Neoclassical, behavioral, and macro approaches to explaining M&A activity, I find that the assumptions of these respective paradigms have inhibited individual researchers from including important determinants of M&As. Furthermore, I show that these constraints have generated misleading point estimates. By constructing a more holistic model of M&A activity, I produce more accurate estimates of merger determinants and reveal the bias of previous estimation techniques. Finally, I relax the common, yet unrealistic, assumption that firms are homogeneous, showing that the determinants of M&As vary by firm size, region, and sector. These results demonstrate that an overly aggregated approach to merger determinants conceals important variation.
While addressing seemingly disparate topics, these three essays use the tools of applied macroeconomics to help make sense of real-world puzzles identified in the macroeconomic literature. Together, they demonstrate the power of empirical analysis, taking heterogeneity seriously, and, most importantly, the economic way of thinking.