Essay on Macroeconomics

The Dissertation consists of three chapters. The first chapter is about bankruptcy. I set up a heterogeneous agents model to analyze the effect of bankruptcy on the credit market, entrepreneurship, growth and social welfare. First, lenient bankruptcy (e.g. small bankruptcy cost, less financial restriction for bankruptcy filers) decreases credit supply by increasing financial intermediaries\u27 loss. This results in the rise of the market interest rate. Second, lenient bankruptcy has a positive effect on entrepreneurship in general. It enhances the incentive for individuals to establish firms and easily shut down their firms. Therefore the share of entrepreneurs can be either smaller or larger since it is affected by these entry and exit rates. Third, lenient bankruptcy promotes productivity and economic growth. Less financial restriction for bankruptcy filers gives more opportunity of re-entering business to agents who failed in the past but have high entrepreneurial ability now. The small bankruptcy cost encourages low productivity entrepreneurs to exit business and therefore enhances overall productivity of an economy. Fourth, the lenient bankruptcy increases overall social welfare. Even though the lenient bankruptcy reduces credit supply by increasing the capital loss of financial intermediaries, it gives more consumption insurance to risk averse agents by allowing high exemption of asset holdings at bankruptcy as well as gives them more opportunity to restart their business. I provide empirical evidence to support the theoretical results of this paper.The second chapter is about non-regular employments. Dualism in the labor market is a huge challenge for many advanced countries in terms of economic efficiency as well as inequality. In this paper, I empirically analyze the reason why people become non-regular workers and why firms would like to hire non-regular workers by using micro level data. Drawing on the results of the empirical studies, I set up a heterogeneous agents model to analyze the effects of prevailing government policy that enhances the labor market flexibility by relaxing the regulation on the non-regular labor market. Especially I analyze the effects of the labor market reformation in Korea, which further deregulates the non-regular labor market.Even though this policy has some gains in economic efficiency (e.g. output, total employments), it not only has adverse effects on job security by increasing the proportion of non-regular workers but also expands the wage gap between the two groups, regular and non-regular workers. The quantitative analysis shows that the model suggested in this paper can well explain the data of Korea.For future policy options, I evaluate three relevant policies: (1) continuing the existing policy by relaxing the regulation on the non-regular labor market alone; (2) decreasing the adjustment cost in both labor markets simultaneously; and (3) decreasing the adjustment cost in both labor markets while maintaining severance payments. This paper finds that the second policy choice generally attains better outcome in economic efficiency, but it has side effects of increasing wage polarization between two labor groups and hurts overall social welfare as well. On the other hand, the third policy choice achieves the highest social welfare by giving proper consumption insurance even though it sacrifices some gains from economic efficiency. Adequate policies including training and job search programs for non-regular workers as well as fixing income distribution should be considered.The third chapter is about severance payment. A severance payment is a payment that employers give to workers who leave firms. It has different meanings. From the employer\u27s point of view, it is a firing cost, as in Hopenhayn and Rogerson (1993). However, from the worker\u27s point of view, it is an insurance in response to risk of unemployment as in Alvarez and Veracierto (2001). I\u27ll add a finance role of severance payments to the firing cost and insurance roles. In order to analyze the three roles of the severance payment, I set up a heterogeneous agents model with an incomplete financial market. The incompleteness has two meanings in this paper. First. like Alvarez and Veracierto (2001), agents do not have enough instruments to smooth consumption. Hence, the severance payment has a role of insurance for the risk of unemployment. Second, unlike Alvarez and Veracierto (2001), agents face an imperfect capital market with collateral constraints. In this sense, the severance payment can be seed money to start a business. Then I address important questions related to the effects of severance payment on economic efficiency and social welfare