First Chapter: The period of jobless and wageless growth that followed the great recession in the United States raises the question why expansionary credit policies were less effective for the recovery in employment and real wages in comparison to output. Using a structural time series analysis of the US credit and labor markets since 1965, I find that, indeed, credit supply expansions have been associated with a negative impact on the aggregate labor share. This paper offers one explanation that relies on the composition effects of credit expansion. I provide evidence that the pass-through of aggregate credit supply fluctuations to employment growth is stronger for industries that face higher borrowing costs. Firms in these industries prefer collateralizable capital to labor, and pay lower wages. Consequently, by increasing their share in total output and employment, the change in composition following an expansion in credit supply exerts negative pressure on the aggregate labor share. I build a dynamic model of heterogeneous firms and an aggregate financial sector, which accounts for the interaction between financial and labor market frictions. The model reproduces the negative composition effects of an aggregate credit supply expansion, and reconciles them with the positive within-firm effects predicted by models that abstract from the role of financial heterogeneity across firms. The paper, therefore, raises the concern that credit easing may not target firms that have strong potential to hire or pay high wages. Second Chapter: The paper estimates the dynamic impact of structural oil market shocks on the balance sheet of US firms, using industry level data covering manufacturing, trade and mining sectors. For manufacturing firms, findings indicate that an unexpected disruption in oil supply that raises oil prices by 1$\%$ lowers firm profits by 1.3$\%$ on impact. On the other hand, profits rise by 0.39$\%$ in response to the same increase in the price of oil, when it is driven by a positive movement in the global demand for oil, and by 0.79$\%$ after an unexpected surge in speculative oil demand. The positive balance sheet effect of speculative oil shocks on the manufacturing sector contrasts their negative effect on global economic activity. An explanation follows from the industry level analysis, which suggests that speculation in the oil market creates a ripple effect in downstream industries and raises inventory demand for petroleum and chemical products. In contrast to its secondary role in explaining historical variations in the price of oil and profits in trade and mining sectors, oil supply shocks are found to have been the dominant oil market innovations in driving fluctuations in manufacturing firms' profits. The analysis also finds a limited response of production costs to exogenous changes in the oil price, disputing the classic notion that the cost share of oil in an industry determines its level of exposure to oil market shocks. Third Chapter: Large productivity gaps across sectors persist and the process of structural transformation is stagnant in many developing economies. This wedge between observed and optimal labor allocations reflects the presence of institutional and market frictions, which impose costs on the optimal reallocation of labor from low to high productivity sectors. Using a panel of cross-country sector-level data, I estimate a dynamic panel error correction model that captures the dynamics of sectoral labor flows. The model estimates provide a new set of stylized facts on the dynamics of the structural transformation process, and a measure of the magnitude of frictions facing labor flows. In addition, I analyze the contribution of labor regulations and reforms to the pace at which labor flows across economic sectors. Results suggest that policy reforms need to steer between the goal of easing job creation and destruction, while supporting labor supply incentives to reallocate through strong social nets, labor protection, and risk sharing.
