We study how labor rigidities affect firms' responses to credit shocks. Using novel data on the universe of workers, firms, banks and credit in Portugal, we establish three main facts. First, a short-term credit supply shock leads to a decrease in firms' employment and size and to a greater probability of exit, but the effects are concentrated on firms deriving greater value added from labor within their industries. Second, this exposure to liquidity risk stems from exposure to high-skill workers' compensation: the shock disproportionately affects productive firms with a high-skilled specialized labor force that requires greater investment in on-the-job training. Third, given labor costs exposure, productivity does not attenuate the effects of credit shocks. Our findings suggest that labor rigidities are an important driver of the lack of productivity-enhancing reallocation throughout financial crises.

I analyze the effect of non-compete agreements (NCAs) on career trajectories of 600,000 inventors in the US. NCAs constrain the employment choice set of inventors, who are unable to move to competitors. I show that inventors bypass their NCAs by moving to new employers in more distant product markets. I identify causal effects using staggered changes in NCA enforcement across US states. There is significant reallocation as 1.5 in 100 inventors annually move to more distant product markets after higher NCA enforcement. Reallocated inventors are subsequently less productive. Inventors move to new employers who are less reliant on NCAs and they patent in unfamiliar technologies. There is a lower quality match between inventors and their new employers. I highlight regulatory frictions which lead to unintended detrimental reallocation of human capital in the economy.

An established theoretical literature argues that uncertainty shocks are important determinants of firm decisions and aggregate fluctuation. However, few studies estimate the causal effects of these shocks on firm level employment dynamics, usually focusing on samples of public firms, with limited information on the firms' employment decisions. In this paper, we shed light on the interplay between firm-level uncertainty shocks and heterogeneous employment decisions using a matched workers-firms dataset of the population of Swedish firms for 1997-2017, with more than 18 million worker-level observations. Using shrinkage methods on commodity prices, we construct a firm-specific expected profits shock, and the associated second moment uncertainty index. We use them to measure the causal effect of exogenous changes in uncertainty on the employment decisions of firms. We find that negative first moment profitability shocks significantly reduce hiring and increase firing uniformly across different categories of workers. Conversely, uncertainty shocks change little the overall employment levels, but have significant and quantitatively important compositional effects. In particular, when uncertainty increases, firms are less likely to fire younger and short-tenured workers, are more likely to hire workers with previous experience in the same sector, and are more likely to both hire and fire more skilled workers, relative to normal times. The results emphasize the importance of workers heterogeneity, especially along the flexibility dimension, in driving the effects of uncertainty shocks on employment dynamics. Additional robustness checks confirm this interpretation and highlight the role of disruptive high uncertainty episodes as creative destruction periods for the labour force.