This paper studies the effects of investment tax credits on firms’ input choices by exploiting a sudden shift in the tax credit rate by firm size for manufacturing firms in Germany in 1999. I find that more generous tax credits lead to a significant increase in both investment and employment, with implied elasticities with respect to capital costs of 2.8 and 1.1, respectively. Local spillovers between firms generate an additional positive effect. The employment effect is due to the increased hiring of new employees rather than a decrease in separations, with direct flows out of unemployment constituting about half of the inflow of workers. A heterogeneity analysis reveals that firms with larger capital cost shares are more responsive to tax credits and that spillovers tend to be stronger for firms operating in the same industry. While there is little evidence that the average firm adjusts its skill mix or occupational structure, firms in industries with higher investment shares into information and communications technology (ICT) are more likely to shift towards highly educated labor and high-skilled occupations.
In this paper, we analyze how the formal recognition of immigrants’ foreign occupational qualifications affects their subsequent labor market outcomes. The empirical analysis is based on a novel German data set that links respondents’ survey information to their administrative records, allowing us to observe immigrants at monthly intervals before, during and after their application for occupational recognition. Our findings show substantial employment and wage gains from occupational recognition. After three years, the full recognition of immigrants’ foreign qualifications increases their employment rates by 24.5 percentage points and raises their hourly wages by 19.8 percent relative to immigrants without recognition. We show that the increase in employment is largely driven by a higher propensity to work in regulated occupations. Relating our findings to the economic assimilation of immigrants in Germany, we further document that occupational recognition leads to substantially faster convergence of immigrants’ earnings to those of their native counterparts.
WORK IN PROGRESS
Capital Adjustment Costs and the Elasticity of Substitution: Evidence from Tax Credits
In this paper, I exploit a discontinuity in a German tax policy targeted towards firms to estimate the elasticity of substitution between capital and labor, and the magnitude of capital adjustment costs. The policy reduced investment costs by offering refundable investment tax credits with a preferential tax credit rate for firms with up to 250 employees. Descriptive evidence reveals bunching of firms just below the threshold and a drop in investment volume among firms just above the threshold. In accordance with these findings, I set up a dynamic model of firm investment and employment including size-dependent capital costs and capital adjustment costs. I estimate the elasticity of substitution and capital adjustment costs using simulated methods of moments.
Immigration and the Adjustment Behavior of Firms
This paper examines the effect of immigration in a unified theoretical framework of the labor and product market. Immigrants increase the labor supply in the host country but also raise the demand for consumption goods. These changes influence both firms’ input and output decisions. I focus on the trading behavior between local labor markets in a model with heterogeneous firms similar to Melitz (2003). Firms profit from an inflow of immigrants in their close proximity on the product market, since they can reach more individuals close by without incurring trade costs. To keep labor employed in all regions, wages build a counteracting force and increase in labor markets with an inflow of immigrants.
The Effect of Student Counseling: Evaluation of a German-Wide School Policy
with Silke Anger, Sarah Bernhard, Hans Dietrich, Alexander Patzina, Malte Sandner, Carina Toussaint