This paper identifies the effect of financing constraints on firms’ labor demand. We exploit exogenous funding shocks to German savings banks during the US mortgage crisis that are unrelated to local conditions. We find that firms with credit relationships with affected banks experienced a significant decline in employment and in labor compensation relative to firms whose credit relationships w...

Opportunity Cost and the Incidence of a Draft Lottery Military conscription implicitly taxes draftees. Those who would have volunteered at the market wage may be forced to serve for lower wages, and those with higher opportunity costs may be forced to serve regardless, yet little is known about the distribution of this burden. We exploit the Danish draft lottery to estimate the causal effect of...

Rapid trade liberalisation can exert profound effects on labour markets. Domestic firms, to sustain competitiveness for survival, could react through cutting labour benefits to achieve cost reductions. Alternatively, trade liberalisation may alter the industry composition of firms changing the aggregate formality rates. This paper studies the relationship between trade liberalisation and inform...

The literature on educational standards suggests that an increase in graduation requirements heightens inequality, since achievement rises only for the best students. The paper derives a different conclusion based on a model featuring workers with heterogeneous abilities. Higher educational standards, while increasing inequality, can increase the earnings of both the most able and the least abl...

This article analyses the optimal allocation of prizes in contests. While existing models on contest design take the set of participants as being exogenously given, in our model contests compete for participants. Our analysis provides a new argument for the widespread occurrence of prizes that reward suboptimal performance. Moreover, we identify a negative relationship between a contest’s predi...

This paper estimates the causal impact of compulsory military service on men in Germany using social security and pension administrative data for the cohort of individuals born in the period 1932–1942. Due to the combination of laws restricting conscription only to men born on or after July 1, 1937, diff erence-in-diff erences estimates of the eff ect of conscription on average daily wages can ...

Job Assignments under Moral Hazard: The Peter Principle Revisited The Peter Principle captures two stylized facts about hierarchies: first, promotions often place employees into jobs for which they are less well suited than for that previously held. Second, demotions are extremely rare. Why do organizations not correct ‘wrong’ promotion decision? This paper shows in a complete contracting setti...

This paper studies effects of unemployment and labour market programmes on real wages in the Czech and Slovak Republics using district panel data for the period 1992-1998. Clear evidence of a “wage curve” exists in both countries. The estimated unemployment elasticity of pay is, however, higher in the Slovak Republic, than in the Czech Republic. The wage subsidy and the public works programme e...

This paper considers job separations in a search model with labour market matching and moral hazard. Both workers and firms value productive matches and take actions to increase match stability: firms offer a share of match surplus to provide workers with correct incentives and workers take hidden actions (effort) negatively affecting the match separation rate. Heterogeneous productivity draws ...

Social Comparisons of Wage Increases and Job Satisfaction* We combine status quo and social comparison considerations and investigate whether relative wage increases in the sense of differences between individual wage increases and wage increases of comparable employees are related to managers’ job satisfaction. Using a panel data set of managers in the German chemical industry, we indeed find ...