Ararat Gocmen

This paper studies the relationship between the growth in private capital markets and the rise in economic inequalities in the U.S over the last two decades. First, we document that the share of financing raised by early-stage companies from U.S. highnet-worth individuals (HNWIs) tripled from 2004 to 2022. Second, exploiting both company-and state-level variation in exposure to the expanded federal capital gains tax exclusion on qualified small business stock (QSBS), we find that QSBS-eligible companies' probability of staying private increased by 3.5 percentage points, and that the average income gap between HNWIs and other income earners increased by 7.2%. Third, we show that this rise in income concentration appears to have been driven by HNWIs' excess returns on their early-stage investments relative to public stock market returns. Finally, using counterfactual simulations, we find that HNWIs' excess returns on these investments accounted for 2% and 14% of the growth in the top 0.5% share of post-tax income and wealth, respectively, from 2010 to 2022.

I investigate the effects of immigration on firms' investment decisions, at both the intensive margin (the scaling up of existing firms’ capital stocks) and the extensive margin (the founding of new firms). I highlight two key dimensions of firm-level heterogeneity in these effects: in the degree of capital intensity in a firm’s production process, and in the extent of financial constraints that the firm faces. In the empirical contexts of Germany and France during the 2010s, a decade during which both countries absorbed large immigration shocks, I evaluate the hypothesis that only capital-intensive and financially unconstrained firms will respond to immigration by increasing their capital stocks. I then reevaluate this hypothesis in the context of a theoretical model, combining the insights of the canonical model of the labor market effects of immigration with those of classical models of firms’ investment decisions. My findings show how capital investments by firms can attenuate the negative effects of immigration on incumbent workers’ earnings.

We investigate how the effects of immigration on native workers’ employment and wages depend on the initial tightness of the labor market. We find that, in Germany during the 2010s, increases in immigrant employment caused native employment to decline in initially slack local labor markets, but with little effect on native wages. In contrast, in initially tight local labor markets, we find considerably less negative employment effects but moderately more negative wage effects of immigration. Overall, labor market tightness mitigates the negative effect of immigration on native workers’ earnings, suggesting the importance of aligning immigration policy with macroeconomic policy. We show that our pattern of results is consistent with a search-and-matching model of the labor market effects of immigration, but not with the canonical neoclassical model.