Essays in Labor Economics and International Economics

This dissertation includes three essays in labor economics and international economics. The first essay studies the relationship between the amount of a loan demanded by firms and their labor demand. Governments have developed small loan programs with a reduced interest rate to decrease unemployment in Iran. Using longitudinal, firm-level data from the years 2005 to 2010 in Iran, this study examines the effect of one Iranian province\u27s loan program on employment based on two different methods of evaluating causal effects. The first method applies a difference-in-difference fixed effects matching estimator to estimate the employment effect of the program. The second method applies the generalized propensity score to estimate the impact of the amount of a loan on employment. The results from the first method suggest that the loan program has a positive and significant effect on the employment of treated firms. The results from the second method suggest that the estimated employment effects increase with the amount of the loan, whereas there is a decrease in the marginal effects of an additional amount of loan. The second essay investigates how the difference between firms\u27 inflation expectations, measured by the loan amounts they demand, and actual inflation affects their labor demand. In addition, I examine the relationship between firms\u27 inflation expectations and wages in an individualistic bargaining model in which individual workers bargain over wages with their employers. Theoretically, the model shows that a firm\u27s actual labor demand meets its expected labor demand if the firm has a rational expectation regarding inflation. On the other hand, the firm\u27s actual labor demand does not meet its expected labor demand if the firm cannot forecast inflation correctly. Empirically, I use firm-level data from a province in Iran between 2004 and 2011 to test the model\u27s predictions. The empirical results confirm that there is a specific loan amount for which firms\u27 expected labor demands meet their actual ones. In contrast, there is a gap between firms\u27 expected labor demands and their actual ones for any other loan amount. Furthermore, the result indicates that there is a positive and significant relationship between the loan amounts demanded by firms and wages. These results can be explained by firms\u27 inflation expectations and show that they are not consistent with full-information rational expectations models, though they are not far away from them. The third essay examines the effects of the trade sanctions imposed on Iran in 2010 on employment, demand for skilled labor, and wages. I use industrial manufacturing data that cover 10 years before and 5 years after the sanction, 28 provinces, and more than 200 different industries. The results regarding the employment impact of the trade sanctions show that there was remarkable job destruction, most notably in domestically active industries, during the sanction period. The decomposition of the increase in the aggregate demand for skilled labor sheds light on the fact that it comes from labor reallocation within industries, not from across industries. The trade sanctions adversely affected both exporters\u27 and non-exporters\u27 total-factor productivity; however, non-exporters endured a larger negative impact. This induced biased technological change between exporters and non-exporters, which resulted in a market share reallocation towards exporters. As a result, the demand for skilled production workers and their per-capita real average wage increased, whereas the demand for non-production workers and their per-capita real average wage decreased during the sanction years. This opposite effect is explained by the elasticity of substitution