In this paper, we propose that a liquid labor market can discipline firm managers and improve corporate governance by pushing firms to compete in the labor market. We use the state-level staggered changes of noncompete agreement enforceability as the variation in labor market mobility and conduct DID estimation. Applying the textual analysis approach to capture managers’ attention to labor, we show that higher labor market mobility makes firm managers care more about labor. We also find institutional investors sell firm stocks if the firm fails to retain employees. These results suggest that labor market mobility imposes pressure on firm managers and discipline them. We find that restricting labor market mobility leads to less efficient executive compensation schemes, indicating a positive link between labor market mobility and corporate governance. Further tests show that the impact of labor market mobility is more prevalent in firms relying more on skilled employees and firms facing fiercer product market competition. The above evidence suggests that labor market mobility can serve as an external governance mechanism.

Taking a cognitive perspective, we explore why teams with the same level of cultural diversity can differ in their level of creativity. We argue that team members with a high multicultural paradox mindset are able to go beyond “either/or” approaches to manage intercultural tensions and adopt a “both/and” approach. Their presence thus enables multicultural teams to embrace these tensions and leverage their cultural diversity toward team creativity. Specifically, we hypothesize that teams with members that have a high multicultural paradox mindset are more creative because these members promote information elaboration at the team level, which in turn fosters creativity. We test our hypotheses in a study of 217 individuals randomly assigned to 63 culturally diverse teams. Results provide support for our overarching theory.

Do disruptions in market liquidity of long-term bonds have a quantitatively important impact on the macroeconomy? This paper introduces search-based secondary markets for long-term corporate bonds into a dynamic general equilibrium model. In the model, with borrowing constraints and incomplete insurance, firms restrict hiring ex-ante when default risk increases. A worsening of bond market liquidity, by affecting bond prices and thus the borrowing limits for firms, has aggregate negative impact on firms’ labor choices. A positive default-liquidity spiral further amplifies these effects. In the quantitative analysis of my model, I show that a liquidity shock calibrated to match the observed increase in the bid-ask spread could explain about 20% of the employment losses in the Great Recession. The paper also provides a structural estimate of the impacts of the Fed’s corporate bond purchasing program on the real economy during the COVID-19 crisis. By improving bond market liquidity, the Fed’s interventions avoided a 2 percentage point drop in employment.