Essays in Financial Economics

Abstract

In Chapter 1, joint work with Bledi Taski, we pose the question: how do workers value retirement benefits relative to wages and what impact do these benefits have on firm hiring? We find that dollars paid in employer contributions to 401(k) plans have nearly double the effect on a firm's recruiting success than dollars paid in wages. However, the effect is driven primarily by high-income and higher-age occupations. We use two novel instruments to identify the results: 1) IRS mandated non-discrimination testing of retirement plans and 2) corporate policies of national wage setting. We then develop and estimate an on-the-job search model which shows that the average worker requires only a 0.25 percentage point increase in employer contribution dollars to offset a 1% decrease in wages. Again, retirement valuations are positively correlated with salary. We confirm the channel in an online survey setting: participants are willing to give up total pay to get a higher employer match to get a non-matching employer-sponsored 401(k). The results imply that 80% of firms could improve their probability of a job offer being accepted by increasing 401(k) contributions.

Chapter 2, joint work with Jonathan Parker, Antoinette Schoar, and Duncan Simester, documents the share of investable wealth that middle-class U.S. investors hold in the stock market over their working lives. This share rises modestly early in life and falls significantly as people approach retirement. Prior to 2000, the average investor held less of their investable wealth in the stock market and did not adjust this share over their working life. These changes in portfolio allocation were accelerated by the Pension Protection Act (PPA) of 2006, which allowed employers to adopt target date funds (TDFs) as default options in retirement saving plans. Young retail investors who start at an employer shortly after it adopts TDFs have higher equity shares than those who start at that same employer shortly before the change in defaults. Older investors rebalance more to safe assets. We also study retirement contribution rates over the life-cycle and find that average retirement saving rates increase steadily over the working life. In contrast to what we find for investment in the stock market, contribution rates have been stable over time and across cohorts and were not increased by the PPA.

In Chapter 3, I use administrative data on very small businesses (median 5 employees) to measure the effects of the Paycheck Protection Program (PPP). Firms that applied for PPP increased employment by 7.5% relative to similar firms that did not apply. The positive effects on employment occur primarily in industries which were less affected by COVID-19: industries with more employees that are able to work remotely, those that have fewer hourly workers and essential businesses. Novel data on hiring shows that PPP worked as intended by preserving employment matches. My estimates imply a cost of approximately $270,000 per job-year at small firms.