The three essays in this dissertation examine how differences across firms shape macroeconomic outcomes. These essays combine models of heterogeneous firms with detailed micro data to answer long-running questions about the U.S. economy: how well are resources allocated across firms? Does globalization drive income inequality? How large are the economic spillovers of firm reputation? Each essay highlights a different aspect of firm or industry heterogeneity that meaningfully changes the answer to the question at hand.Chapter 1, from a work with Sui-Jade Ho, quantifies misallocation in the U.S. manufacturing sector using a structural model and restricted microdata from the U.S. Census. The estimated misallocation---the distance between aggregate productivity and a frontier where marginal products are equalized---declined 13 percent between 1982 and 2007. Key features of the model and estimation are markups and returns to scale that vary across industries and time. Strikingly, imposing a common markup and constant returns to scale, as is commonly done in the literature, implies that misallocation increased 29 percent over the same period. The essay rationalizes these discrepancies and shows that they arise from overlooking variation in markups and returns to scale.Chapter 2, from a work with Lin Ma, provides causal evidence that access to global markets leads to a higher executive-to worker pay ratio within the firm. Specifically, the essay uses China;;s 2001 accession to the World Trade Organization as a trade shock to show that firms that exported to China prior to 2001 subsequently exported more, grew larger, and grew more unequal in terms of executive-to-worker pay. Counterfactual exercises in the accompanying structural model suggest that trade and FDI liberalizations can explain around 52 percent of the surge in top 0.1 percent income shares in the U.S. data between 1988 and 2008.Chapter 3, joint with Ruediger Bachmann and Gabriel Ehrlich, uses the 2015 Volkswagen emissions scandal as a natural experiment to provide causal evidence that group reputation externalities matter for firms. The essay estimates that the scandal reduced the U.S. sales of non-Volkswagen German auto manufacturers by approximately 76,000 vehicles over the following year, leading to a loss of approximately $3.7 billion of revenue. These declines in sales accompanied declines in stock returns and in social-media sentiment toward these firms. Volkswagen;;s malfeasance materially harmed the group reputation of ;;German car engineering” in the United States.
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