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Optimal Incentive Contracts with Job Destruction Risk
We study the implications of job destruction risk for optimal incentives in a long-term contract with moral hazard. We extend the dynamic principal-agent model of Sannikov (2008) by adding an exogenous Poisson shock that makes the match between the firm and the agent permanently unproductive. In modeling job destruction as an exogenous Poisson shock, we follow the Diamond-Mortensen-Pissarides search-and-matching literature. The optimal contract shows how job destruction risk is shared between the rm and the agent. Arrival of the job-destruction shock is always bad news for the rm but can be ...
The Effect of Immigration on Business Dynamics and Employment
Immigration, like any positive labor supply shock, should increase the return to capital and spur business investment. These changes should have a positive impact on business creation and expansion, particularly in areas that receive large immigrant inflows. Despite this clear prediction, there is sparse empirical evidence on the effect of immigration on business dynamics. One reason may be data unavailability since public-access firm-level data are rare. This study examines the impact of immigration on business dynamics and employment by combining U.S. data on immigrant inflows from the ...
Job Heterogeneity and Aggregate Labor Market Fluctuations
This paper disciplines a model with search over match quality using microeconomic evidence on worker mobility patterns and wage dynamics. In addition to capturing these individual data, the model provides an explanation for aggregate labor market patterns. Poor match quality among first jobs implies large fluctuations in unemployment due to a responsive job destruction margin. Endogenous job destruction generates a burst of layoffs at the onset of a recession and, together with on-the-job search, generates a negative comovement between unemployment and vacancies. A significant job ladder, ...