This collection of essays attempts to address the question: what are the main driving forces of the recent changes in entrepreneurship and business dynamics in the US? In the first chapter, I examine changes within businesses in the US by showing that the share of value added by pass-through entities (sole proprietorships, partnerships, LLCs, and S-corporations) almost doubled while that of C-corporations has declined by one-forth. During this period, there have been notable changes in the tax structure and tax avoidance within these entities. I develop a dynamic growth model with endogenous tax avoidance, occupation choice, and uninsurable entrepreneurial risk to study the extent to which changes in taxation can account for the observed reallocation of output. My model results show that changes in tax structure account for 14 percent of the reallocation of output share observed in the US. I also find that the cumulative effect of changes in taxation, borrowing ability, and tax avoidance accounts for about 26 percent of the reallocation of output. In Chapter 2, I examine a different perspective on business dynamics by documenting the decline in business formation and entrepreneurship in the US. In fact, I document that entrepreneurship is more prevalent in married households and amongmen, and that these groups have undergone a greater decline in entrepreneurship since the 1980s. Additionally, I document that changes in the number of married households and the increase in female labor force participation account for over 40 percent of the overall fall in entrepreneurship in this period. To understand the relationship between demographic composition factors and entrepreneurship, I develop a model with an occupation choice for individuals of different marital status, college skills, and gender. The model takes into account important features of the data, including the extent of marital sorting, the skill premium, the gender wage gap, and the gender business income gap. My results indicate that changes in the demographic composition (share of married households, fraction of skilled individuals, marital sorting) account for 76% of the decline in entrepreneurship, 68.4% of the fall in married entrepreneurs, and 70.5% of the decrease in male entrepreneurs. Moreover, considering all changes account for 82.8% of the observed fall in entrepreneurship.

A central concern for modern macroeconomics is incorporating and understanding worker heterogeneity. The following two essays explore labor market dynamics along the dimensions of worker heterogeneity, search frictions, and policy. In each essay, I construct a macroeconomic model of the labor market, calibrate the model using micro data, and use the model to interpret labor market outcomes and evaluate policy. In the first chapter, I build an equilibrium lifecycle model of wages in which heterogeneous workers endogenously invest in human capital accumulation and on-the-job search effort while firms post jobs. I discipline the model using microdata from the Survey of Income and Program Participation. The calibrated model shows that on-the-job search drives lifecycle wage growth while heterogeneous human capital accumulation drives lifecycle wage dispersion. Then, I use the model as a laboratory to study the effects of tax and transfer progressivity. An increase in progressivity decreases wages, primarily due to reduced on-the-job search effort. Interactions between human capital, search, and job posting amplify the decrease in wages. Surprisingly, an increase in progressivity has little effect on wage dispersion because the effects from the human capital and search channels offset each other. The second chapter deals with the persistence of the unemployment rate over the business cycle. Standard search models contain little internal propagation and predict that, after shocks, the unemployment rate quickly converges to its steady state level. I show that duration dependence in unemployment (the fact that unemployed workers with longer unemployment spells are less likely to find jobs) helps explain the persistence of the unemployment rate. I embed duration dependence in an otherwise standard search model and show that it significantly increases the unemployment rate persistence, reconciling the model to the data. Intuitively, after recessions, the composition of the unemployment pool shifts to the long-term unemployed. Because of duration dependence, the long-term unemployed have lower job finding rates, and the shift in composition decreases the aggregate job finding rate, slowing recovery. The magnitude of the effect depends on the extent to which duration dependence is causal rather than a consequence of worker heterogeneity.

The welfare consequences of price versus quantity-based regulation are known to differ when information about marginal benefits or costs of abatement is imperfect. Does uncertainty about demand for the polluting good also matter for welfare of these two approaches to regulation? In chapter 1, I use plant-level survey data and high frequency variation in power consumption to assess the dynamic implications of uncertainty about future demand for the relative welfare consequences of carbon taxes and cap-and-trade regulation. I address this question in the context of the electricity sector where demand risk is particularly salient. I show that the choice between policy instruments depends on how firms and consumers balance unpredictable output volatility (higher with carbon taxes) vs. price volatility (higher with cap-and-trade regulation). Over a wide range of policy-relevant abatement targets, I find carbon taxes outperform cap-and-trade in terms of welfare. Financial incentives like the Production Tax Credit are central initiatives behind wind power as the leading renewable energy source in the U.S. But do institutional design features of energy markets matter for cost-effectiveness of subsidies to wind investments? In chapter 2, I answer this question by investigating how the design of procurement contracts that are typically used by wind developers affects their investment incentives. Using unit-level data from wind farm production and installed capacity, I find that structuring subsidies based on key features of the type of procurement contracts associated to wind projects leads to major reductions in public expenditures in terms of subsidy payments to wind developers without undermining their investment incentives. The U.S. federal government is known to have a history of heavily subsidizing the wind power industry. Subsidies either to output (Production Tax Credit) or investment goods (Investment Tax Credit) have been critical to replace emissions-intensive technologies with wind power. Which type of subsidy is best to incentivize wind investments at the least cost? In chapter 3, I use plant-level data of wind facilities from the Texas electricity market to develop and estimate a model of investment decisions that accounts for productivity shocks at the wind farm level and prudent behavior of developers. I find that subsidizing production can increase average yearly investment rates in wind capacity up to 2.5 percentage points over mean investment rates under alternative subsidies to capital. This is driven by precautionary savings that developers accumulate to smooth out potential future shocks to investment income when adverse weather conditions lead to low subsidy payments.

These essays attempt to explore how technological change, technology diffusion and economic distortions shape the aggregate economy. The first chapter empirically documents that wage inequality within the group of skilled workers in the U.S. has significantly widened since 2000 and that the changing trend of wage inequality was entirely driven by the non-routine analytic occupation. The model I build demonstrates that the task allocation induced by investment- specific technical change can widen the within-group wage inequality because of the “composition effect”. The quantitative results provide a well-matched timing and magnitude of the non-linear expansion path in wage inequality that is observed in the data. In chapter two I explore the role human capital plays in the convergence of Asian growth miracles. I incorporate the idea that education could facilitate technology diffusion into a growth framework by developing a model of human capital investment, adding a role for human capital in the convergence of productivities towards the technology frontier. I then calibrate my model to the South Korea between 1960 and 2019. My model can remarkably match the ‘S Shaped’ convergence trajectory in South Korea well. More importantly, the quantitative exercises demonstrate that a significant extent of the externality is required to match the transition path of output in South Korea. A series of quantitative experiments suggest that if the externality is removed from the model, then it cannot quantitatively match South Korea’s convergence pattern well. Chapter three documents a fact that that firms in developing economies face both financing constraints and face size-dependent distortions. The two distortions, however, affect firms in opposite ways. I build a model showing that the adverse effects associated with size-dependent distortions drastically reduce, and may even reverse, if firms also face financing constraints. This occurs because the misallocation effects of the two may offset each other. The quantitative analysis shows that size- dependent distortions estimated from data lead to up to 25 percent of output drop if they are implemented alone, but have virtually no effect on aggregate output in the presence of empirically relevant capital financing constraints.

This collection of essays attempts to address the question: how does recent technological progress shape inequality in the labor market? In the first chapter, I document and investigate life-cycle profiles of skill premiums across cohorts. My empirical analysis shows that younger cohorts have steeper growth in the skill premium before age 40 but flatter growth after 40. I use a human capital investment model to account for the cross-cohort variation in skill premium profiles. The results indicate that the flattened growth after age 40 is caused by the drop in human capital (of high-skill workers) near the end of the life cycle. Besides, the magnitude of life-cycle growth in the skill premium is mainly driven by the relative skill price. In chapter two and three, I study how technology usage affects earnings growth and earnings inequality over the life-cycle. In chapter 2, I construct a novel index to identify technology usage at the individual level using occupations as the proxy. I document technology usage patterns over the life-cycle and investigate its empirical relationship with labor earnings. I find that technology usage accounts for more than one-third of the growth in life-cycle inequality. In chapter 3, I develop a life-cycle model with endogenous human capital investments and technology choices to quantify the relative importance of technology usage. The model features rich interactions between technology and human capital such that workers with high human capital are more likely to work with advanced technologies and vice versa. I find that technology usage contributes 31% of the growth in mean earnings and 46% of the growth in life-cycle inequality. I also evaluate policy implications of non-linear taxation on labor earnings. When tax progressivity on labor earnings is changed from US to European levels, the college attainment rate drops by 7 percentage points, and the growth in mean earnings decreases by 23%.

The demographic transition from high birth to low birth is a fundamental process that countries undertake. It can create substantial challenges for economic growth and social policy by straining public finance. This dissertation explores the sources of low fertility and examines the effects of government policies that aim to affect fertility behavior.In the first chapter, I use a static model of fertility choices to estimate to what extent different factors contribute to low fertility in South Korea and examine the effects of child-related policies on fertility. In the model, two key factors affect fer- tility choices: the minimum consumption level required to have a child and women’s opportunity cost of raising children. The model is calibrated to match the fertility behavior of Korean women and used to examine the impact of lump-sum transfers and childcare subsidies on their fertility. I find that transfers to households per child are more cost-effective than child care subsidies. Transfers per child can reach the target fertility at a lower cost by targeting women who already have children and whose wage is sufficiently low to choose to have another child rather than work. In the case of child care subsidies, on the other hand, women who are childless or have one child and whose wage is sufficiently high to choose working over having a child are the most responsive to the policy. Thus, transfers can achieve the target fertility most cost-effectively by inducing higher-order fertility among relatively lower-wage women. In the second chapter, I document the empirical relationships between homeown- ership and fertility in South Korea. First, there is a positive relationship between the home price and fertility among homeowners. A rise in home prices by 7,346,000 KRW, equivalent to 8734.94 USD in 2010, is associated with a 2.95% increase in the mean likelihood of giving birth. Second, for renters, the same increase in the local home price in the prior year is related to a 1.24% decrease in the mean likelihood of giving birth.

This dissertation consists of three essays on the task approach to labor markets. In the first chapter, I document that since 2000 the polarization of wages in the U.S. labor market stopped, as the wages of non-routine manual occupations fell in relative and absolute terms. I analyze the end of wage polarization through the lens of a dynamic general equilibrium model with occupation-biased technical change, human capital accumulation, and occupational mobility. I show that wage polarization ended because workers in non-routine manual occupations had lower initial human capital and lower human capital accumulation over time, and because after 2000 mobility across occupations fell, which magnified the differences in human capital accumulation across occupations. The second chapter estimates the effect of the import competition from China on the intensity of tasks performed by workers within U.S. manufacturing establishments between 2002 and 2017. I measure the changes in the intensity of these tasks by linking information on occupational employment from the Occupational Employment Statistics to the occupational characteristics from the Occupational Information Network (O*NET). I find that this “China shock” led establishments to significantly decrease the intensity of cognitive and interpersonal tasks, and to increase the intensity of manual and routine tasks. These estimations are consistent with US establishments reallocating employment to become more similar to their Chinese competitors and have important implications for the design of public policies. The third chapter explores the importance of changes in the intensity of tasks performed by workers to explain the evolution of wages. Despite changes in the workplace, the literature is based on the questionable assumption that the intensity of tasks remains constant over time. I harmonize and compare over time the intensity of non-routine cognitive, non-routine manual, interpersonal, and routine tasks in the Dictionary of Occupation Title (DOT) and the O*NET. I find the new fact that a sizable part of wage changes is due to increases in the return and the intensity of cognitive tasks. I show that this fact has implications for three well-documented wage trends during the last decades: wage polarization, increasing college premium, decreasing gender-wage gap.

These essays are my attempt to answer a big picture question in economics "why some countries are richer than others?". In the first chapter, I document that for a group of 38 countries ranging from low to high income, managers in richer countries are more skilled, and the relative income of managers to non-managers along with skill premium is lower in richer countries. I use a model of investment in skills and occupational choice in which countries differ in productivity level and size-dependent distortions. I find that exogenous productivity differences alone can produce the abovefacts qualitatively, but size-dependent distortions are needed to account for these facts quantitatively. Chapter two accounts for the sources of world productivity growth, using data for more than 36 industries and 40 economies. Productivity growth in advanced economies slowed but emerging markets grew more quickly, which kept global productivity growth relatively constant until 2010. World productivity growth is highly volatile from year to year, which primarily reflects shifts in the reallocation of labor. Deviations from Purchasing Power Parity account for about a third of the shifts. Though markups are large and rise over time, they only modestly affect measured industry-level productivity growth. In chapter three, I document that the mean and dispersion of pre-tax labor earnings grow faster over the life-cycle in the U.S. than in some European countries and individuals with at least a college degree are key for these facts. I use a life-cycle model of human capital accumulation and elastic labor supply which features non-linear taxation and a college choice and investments during college. The model economy is consistent with earnings distribution among college and non-college individuals in the U.S. Non-linear taxation suppresses pre-tax earnings, reduces college attendance and investments during college. More generous subsidies for college exacerbate labor earning inequality. Differences in taxation and college subsidies account for 94% of the differences in mean earnings, and 80% of the differences in inequality over the life-cycle across the U.S. and European countries.

This dissertation consist two chapters related with misallocation and economic development.

The first chapter studies the organization of production, as summarized by the number of managers per plant, the number of workers per manager and the mean size of plants in terms of employment. First, I document that in the manufacturing sector, richer countries tend to have (i) more managers per plant, (ii) less workers per manager and (iii) larger plants on average. I then extend a knowledge-based hierarchies model of the organization of production where the communication technology depends on the managerial level in the hierarchy and the abilities of subordinates. I estimate model parameters so that the model jointly produces plant size distribution and number of managers per plant in the United States manufacturing sector. I find that when the largest, more complex, plants face distortions that are twice as large as distortions faced by smaller plants, output declines by 33.4% and the number of managers per plant falls by 30%. Moreover, I find that a 10% increase in communication cost parameters can account for a 35% decrease in the aggregate output without having a significant effect on the number of managers per plant.

The second chapter examines the relationship between bribery, plant size and economic development. Using the Enterprise Survey, I document that small plants spend higher fraction of their output on bribery than big plants do. Then I develop a one sector growth model in which size-dependent distortions, bribery opportunities and different plant sizes coexist. I find that size-dependent distortions become less distortionary in the presence of bribery opportunities and the effect of such distortions on the plant size become reversed since bigger plants are able to avoid from distortions by paying larger bribes. My results indicate that changes in the distortion level do not affect output and size significantly because managers are able to circumvent the distortions by adjusting their bribery expenditures. However, the removal of distortions can have a substantial effect on both the output and the mean size. Output in Turkey can increase by 12.3%, while the mean size can increase by almost double.

This dissertation consists of two chapters. The first chapter studies children's skill formation technology while endogenizing the maternal age and child investments. I estimate the effect of a mother's age at childbirth on her child's health, skill level, educational attainment, and adulthood earnings. There is a tradeoff between delaying childbirth to provide a more secure economic environment for mother and child versus the potential negative biological consequences for a child of having an older parent. I quantify this tradeoff. The results indicate that a five-year decrease in the maternal age of educated women, ceteris paribus, results in over 0.50 std increase in the child’s skill level due to an increase in the child’s ability to acquire skills. However, if one adjusts child investment according to individuals’ wage profile conditional on reduced maternal age, the average child’s skill level decreases by 0.07 std. This reduction in children’s skill highlights the impact of lower inputs that children of younger mothers receive. The negative effect of foregone wages may be reduced through policy approaches. My policy analysis indicates implementing a two-year maternity leave policy that freezes mothers’ wages at the level before childbirth would reduce average maternal age at the first birth by about two years, while also increasing the average child’s skill level by about 0.22 std and future earnings by over 6%.

In chapter two, I study the impact of females' perceptions regarding their future fertility behavior on their human capital investments and labor market outcomes. I exploit a natural experiment to study the causal effect of fertility anticipation on individual's investments in human capital. I use the arguably exogenous variation in gender mix of children as an exogenous shock to the probability of further fertility. I document that having two children of the same gender is associated with about 5% lower wages for the mother compared to having two children of the opposite sexes. Mothers with same-sex children perceive themselves as more likely to bear one more child, and so less attached to the labor market, so invest less in human capital, and this is reflected in wages today.