Establishment closures have lasting negative consequences for the workers displaced from their jobs. We study how these consequences vary with the amount of skill mismatch that workers experience after job displacement. Developing new measures of occupational skill redundancy and skill shortage, we analyze the work histories of individuals in Germany between 1975 and 2010. We estimate difference-in-differences models, using a sample of displaced workers who are matched to statistically similar non-displaced workers. We find that displacements increase the probability of occupation change eleven-fold. Moreover, the magnitude of post-displacement earnings losses strongly depends on the type of skill mismatch that workers experience in such job switches. Whereas skill shortages are associated with relatively quick returns to the earnings trajectories that displaced workers would have experienced absent displacement, skill redundancy sets displaced workers on paths with permanently lower earnings. We show that these differences can be attributed to differences in mismatch after displacement, and not to intrinsic differences between workers making different post-displacement career choices.

Externalities and social preferences, such as altruism, play a key role in the choice of social interactions, which in turn affect the diffusion of a pandemic. We build a dynamic epidemiological model with endogenous social interactions in a frictional environment, also in a variant with heterogeneous agents and a network structure. Taking into account agents’ endogenous behavior and altruism generates markedly different predictions relative to a naïve epidemiological model with exogenous contact rates. Congestion and commitment inefficiencies arise, even under full altruism, and call for policy intervention. We derive the efficient allocation, and show how the Ramsey planner can mitigate the respective externalities.

We study the firm-level and aggregate effects of government-imposed employment targets. We develop a dynamic general equilibrium model with heterogeneous firms and endogenous productivity growth in which penalties for below-target hiring generate a polarization mechanism: low-productivity firms exit, while others expand employment beyond efficient levels, and firms invest in productivity to avoid future penalties. We test and confirm the model’s firm level predictions using unique contractual data on more than 18,000 employment commitments from the East German privatization, exploiting quasi-random variation in the assignment of privatizers to firms. Quantitatively, employment targets reduce unemployment in the short run, but these gains reverse over time as distorted labor allocations and weakened investment incentives slow aggregate productivity growth and reduce welfare. We also evaluate how alternative designs for employment-protection (e.g., the choice between mandates and subsidies, the structure of targets) impact misallocation and the resulting short- and long-run outcomes.

The standard economic model of occupational choice following a basic Roy model emphasizes individual selection and comparative advantage, but the sources of comparative advantage are not well understood. We employ a unique combination of Dutch survey and registry data that links math and language skills across generations and permits analysis of the intergenerational transmission of comparative skill advantages. Exploiting within-family between-subject variation in skills, we show that comparative advantages in math of parents are significantly linked to those of their children. A causal interpretation follows from a novel IV estimation that isolates variation in parent skill advantages due to their teacher and classroom peer quality. Finally, we show the strong influence of family skill transmission on children’s choices of STEM fields.

The standard economic model of occupational choice following a basic Roy model emphasizes individual selection and comparative advantage, but the sources of comparative advantage are not well understood. We employ a unique combination of Dutch survey and registry data that links math and language skills across generations and permits analysis of the intergenerational transmission of comparative skill advantages. Exploiting within-family between-subject variation in skills, we show that comparative advantages in math of parents are significantly linked to those of their children. A causal interpretation follows from a novel IV estimation that isolates variation in parent skill advantages due to their teacher and classroom peer quality. Finally, we show the strong influence of family skill transmission on children’s choices of STEM fields.