Working papers

Illiquid Equity, Labor Mobility, and Talent Allocation

Job Market Paper

Using stock market shocks to randomize the completion of a firm’s liquidity event, I provide evidence that illiquid equity constrains labor mobility and talent allocation. I find that illiquidity reduces the mobility of employees with vested equity, while employees with unvested equity remain unaffected. The lock-in effect of illiquidity for vested employees is distinct from the well-known retention effect of unvested equity. I show that, by reducing labor mobility, illiquidity interferes with the assortative re-matching of talent in the economy. Recent trends of innovative startups staying private for longer can impose an externality on the broader economy by trapping employees in sub-optimal employer matches.

Decomposing Within-Firm Wage Inequality

with C. Lin, B. Lochner, and T. Schmid

Using employee-level data from Germany, we show that wage differences among employees who perform similar tasks (horizontal wage inequality, HWI) and among employees who perform different tasks (vertical wage inequality, VWI) contribute equally to the overall wage inequality within firms. A wage model with employee and establishment fixed effects reveals that VWI is nearly exclusively explained by the remuneration for heterogeneous employee characteristics (e.g., ability or education). For HWI, employee characteristics explain about three-quarters, and suggestive evidence based on differences in human resource policies, firm profitability, and monitoring costs reveals that pay-for-performance schemes are a plausible explanation for the remaining quarter.

The Reorganization of Knowledge when Firms Go Public

with B. Lochner, S. Obernberger, and M. Sevilir

We examine how firms adapt the composition and organization of their labor force when they go public. Hiring and reorganization begins two years ahead of the IPO. Hiring is strongest in high-skill jobs requiring knowledge in finance, accounting, and internal governance. In order to economize on the costs of maintaining a larger labor force with a broader knowledge base, we find the IPO firm to reorganize into a more hierarchical structure with smaller departments. IPO firms hire many young, highly skilled, but inexperienced employees to fill the middle ranks in this organization. Two thirds of top management are replaced in the process of going public. The wage gap between top managers and middle managers widens, in line with a higher utilization rate of knowledge of top managers after the reorganization. Overall, our results suggest that going public is associated with a comprehensive transformation of the firm’s labor force which becomes geared towards exploiting available technologies rather than generating innovation.

Customer Concentration and the Upstream Propagation of Idiosyncratic Shocks: Evidence from Labor Strikes


This paper studies the role of customer concentration in the upstream propagation of idiosyncratic firm-level shocks. I utilize major labor strikes as idiosyncratic disruptions of large firms with multiple suppliers. I find that strike-hit customers impose a substantial output loss on their suppliers. The negative effect increases with suppliers’ direct dependence on disrupted customers. Moreover, suppliers’ output loss is amplified by additional indirect links that exist if suppliers sell products to other companies whose business also depends on the large disrupted customer. Overall, these results show that customer concentration increases the vulnerability of production networks to idiosyncratic firm-level shocks.

Municipal Bankruptcy and the Economic Costs of Financial Contagion

with L. Knauer

This paper examines whether one municipality’s bankruptcy exposes other local governments to economic costs of financial contagion. To disentangle the bankruptcy’s effect from the general economic trend, we identify idiosyncratic bankruptcies using a narrative approach. We show that non-bankrupt municipalities issue less debt following the bankruptcy. To identify the economic consequences of the limited credit market access, we exploit ex-ante heterogeneity in local governments’ maturity of long-term debt. We find that high fractions of maturing debt lead to lower government spending, as well as to lower tradable employment. Overall, our results suggest that bankruptcy as resolution mechanism deteriorates the development of other municipalities that rely on debt financing.

Do Outside Directorships Influence CEO Decision Making? Evidence from Labor Strikes

with T. Schmid

CEO outside directorships are an important phenomenon; however, little is known about their influence on managerial decision making. We investigate how CEOs react after they observe, as a director of another firm, a labor strike that is plausibly exogenous to their firm. They increase cash holdings shortly afterwards, most likely due to an overreaction to the more salient strike risk. In the long run, CEOs adjust their labor negotiations. Consistent with observational learning, they offer higher wages during contract negotiations and manage to reduce strike risk. These results suggest that outside directorships can facilitate both behavioral biases and observational learning.