Essays on Financial and Labor Market Institutions

Abstract

This dissertation examines financial and labor market institutions in the context of risk and insurance. The first chapter focuses on financial market institutions. I build a theoretical model to study incentives for insurance sellers to take precautionary measures to ensure solvency when insurer default risk is a dimension of the competition. The model shows that two-dimensional competition can give rise to market discipline in the choice of default risk and I discuss the finding in light of recent developments in over-the-counter derivatives markets. The second chapter focuses on labor market institutions and studies the design of short-time work (STW) policies. Jointly with co-authors, I empirically examine the effect of extensions of STW on employment and wages by drawing on novel administrative data on short-time-work use in Germany. The findings suggest that STW extensions in Germany did not improve short- or long-run employment outcomes and that the effectiveness of STW policies critically depends on the wage-setting environment. The third chapter addresses the fundamental question of whether and how firms balance different types of risks. Bridging the labor and the financial side, the focus, at the firm level, is on the interaction of risk stemming from labor hoarding and of risk from operations in foreign currency. I develop a novel measure for hoarded labor at the firm level and show that firms with more hoarded labor hedge FX risk more.