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Labor markets are a central channel through which households are exposed to macroeconomic shocks. This dissertation comprises three essays that examine and quantify the impact of macroeconomic fluctuations on labor markets in the United States. Chapter 1 studies how individual job destruction decisions spill over to other workers in the labor market. Using variation in the nationwide layoff decisions of large firms across local labor markets, we find that labor market congestion, caused by many firms simultaneously destroying jobs, significantly amplifies the earnings losses of laid-off workers during economic downturns. We further interpret these findings through the lens of a heterogeneous-agent quantitative model with labor market frictions. Chapter 2 investigates how a decline in the compensation investors demand for bearing firm default risk affects the allocation of labor. We show that loose credit market conditions lead more workers to take jobs at financially risky firms. Using variation from both labor market and credit market segmentation, we find that taking jobs at these firms increases workers’ labor income in the short run, but results in large and persistent earnings losses once credit conditions tighten. Chapter 3 studies how the provision of mortgage forbearance helped stabilize labor markets following the 2020 COVID-19 recession. Using variation in financial intermediation frictions across mortgage servicers, we find that mortgage payment deferrals under the federal forbearance program accelerated the recovery of local employment once economic lockdowns were lifted. Our estimates underscore the importance of household liquidity in boosting labor demand during economic downturns.
