nep-bec New Economics Papers
on Business Economics
Issue of 2005‒10‒08
nineteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Will China Eat Our Lunch or Take Us Out to Dinner? Simulating the Transition Paths of the U.S., EU, Japan, and China By Hans Fehr; Sabine Jokisch; Laurence J. Kotlikoff
  2. Trusting the Stock Market By Luigi Guiso; Paola Sapienza; Luigi Zingales
  3. Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years By Robert E. Hall
  4. Separating the Business Cycle from Other Economic Fluctuations By Robert E. Hall
  5. What’s Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm By Doris Neuberger
  6. Lags, Convexity and the Investment-Uncertainty Relationship By Yishay D. Maoz
  7. Modeling the Effect of Rigidity in Organizational Structure on Organizational Self-Renewal and Knowledge Diffusion: A Theoretical Framework By Avimanyu Datta; Sukumar RayChaudhuri
  8. Union Bargaining Power, Social Dumping, and Foreign Direct Investment By Dermot Leahy; Catia Montagna
  9. Does Centralised Wage Setting Lead into Higher Taxation By Juha Kilponen; Pekka Sinko
  10. Industrial relations, social dialogue and employment in Argentina, Brazil and Mexico By Adalberto Cardoso
  11. The Effects of Self-Managed and Closely-Managed Teams on Labor Productivity and Product Quality: An Empirical Analysis of a Cross Section of Establishments By Jed DeVaro
  12. Are Traditional Retirements a Thing of the Past? New Evidence on Retirement Patterns and Bridge Jobs By Kevin E. Cahill; Michael D. Giandrea; Joseph F. Quinn
  13. The Dark Side of Wage Indexed Pensions By Carlsson, Evert; Erlandzon, Karl
  15. Spatial Competition between Parking Garages and Downtown Parking Policy By Richard Arnott
  16. Time out of work and skill depreciation By Edin, Per-Anders; Gustavsson, Magnus
  17. China Business in the 'Asian Age' - Notes on Strategic Directions for Japanese Electronics Firms - By Kiyoshi Urakami
  18. Employment Dynamics and Business Relocation: New Evidence from the National Establishment Time Series By David Neumark; Junfu Zhang; Brandon Wall
  19. Does Temporary Agency Work Provide a Stepping Stone to Regular Employment? By Michael Kvasnicka

  1. By: Hans Fehr; Sabine Jokisch; Laurence J. Kotlikoff
    Abstract: This paper develops a dynamic, life-cycle, general equilibrium model to study the interdependent demographic, fiscal, and economic transition paths of China, Japan, the U.S., and the EU. Each of these countries/regions is entering a period of rapid and significant aging requiring major fiscal adjustments. In previous studies that excluded China we predicted that tax hikes needed to pay benefits along the developed world's demographic transition would lead to capital shortage, reducing real wages per unit of human capital. Adding China to the model dramatically alters this prediction. Even though China is aging rapidly, its saving behavior, growth rate, and fiscal policies are very different from those of developed countries. If this continues to be the case, the model's long run looks much brighter. China eventually becomes the world's saver and, thereby, the developed world's savoir with respect to its long-run supply of capital and long-run general equilibrium prospects. And, rather than seeing the real wage per unit of human capital fall, the West and Japan see it rise by one fifth by 2030 and by three fifths by 2100. These wage increases are over and above those associated with technical progress.
    JEL: E2 E4 H2 H3 H5 H6 J1
    Date: 2005–10
  2. By: Luigi Guiso; Paola Sapienza; Luigi Zingales
    Abstract: We provide a new explanation to the limited stock market participation puzzle. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function not only of the objective characteristics of the stock, but also of the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less. The calibration of the model shows that this problem is sufficiently severe to account for the lack of participation of some of the richest investors in the United States as well as for differences in the rate of participation across countries. We also find evidence consistent with these propositions in Dutch and Italian micro data, as well as in cross country data.
    JEL: D1 D8
    Date: 2005–10
  3. By: Robert E. Hall
    Abstract: New data compel a new view of events in the labor market during a recession. Unemployment rises almost entirely because jobs become harder to find. Recessions involve little increase in the flow of workers out of jobs. Another important finding from new data is that a large fraction of workers departing jobs move to new jobs without intervening unemployment. I develop estimates of separation rates and job-finding rates for the past 50 years, using historical data informed by detailed recent data. The separation rate is nearly constant while the job-finding rate shows high volatility at business-cycle and lower frequencies. I review modern theories of fluctuations in the job-finding rate. The challenge to these theories is to identify mechanisms in the labor market that amplify small changes in driving forces into fluctuations in the job-finding rate of the high magnitude actually observed. In the standard theory developed over the past two decades, the wage moves to offset driving forces and the predicted magnitude of changes in the job-finding rate is tiny. New models overcome this property by invoking a new form of sticky wages or by introducing information and other frictions into the employment relationship.
    JEL: E24 J64
    Date: 2005–10
  4. By: Robert E. Hall
    Abstract: Macroeconomists——especially those studying monetary policy——often view the business cycle as a transitory departure from the smooth evolution of a neoclassical growth model. Important ideas contributed by Friedman, Lucas, and the developers of the sticky-price macro model generate this type of aggregate behavior. But the real-business cycle model shows that the neoclassical model implies anything but smooth growth. A purely neoclassical model, devoid of anything resembling a business cycle in the sense of transitory departures from neoclassical equilibrium, nevertheless explains most of the volatility of GDP growth at all frequencies. Monetary policymakers looking to a neoclassical model to provide the neutral levels of key variables-potential GDP, the natural rate of unemployment, and the equilibrium real interest rate, need to solve a complicated and controversial model to find these constructs. They cannot take average or smoothed values of actual data to find them. Further, low-frequency movements of unemployment suggest a failure of the basic idea that departures from the neoclassical equilibrium are transitory. I discuss new theories of the labor market capable of explaining the low-frequency movements of unemployment. I conclude that monetary policymakers should not try to discern neutral values of real variables. Some branches of modem theory do not support the concepts of potential GDP, the natural rate of unemployment, and the equilibrium real interest rate. Even the theories that do support the concepts suggest that measurement in real time is impractical.
    JEL: E32 E52
    Date: 2005–10
  5. By: Doris Neuberger (University of Rostock)
    Abstract: The financial systems in continental Europe are subject to profound changes in the institutions of market exchange. Banks traditionally holding close relationships with firms are substituted by non-bank institutional investors. The present paper examines whether this implies a substitution of relationship finance by arm’s length finance or of firm-like organization by market exchange. Within the contractual theory of the firm, we seek common features of relationship banking and relationship investing. Extending the governance structure approach, we show that both are hybrid organizations, whose comparative advantages depend on two kinds of asset specificity. They are complements to finance and control firms with different redeployability and information opaqueness of assets.
    Keywords: banks, institutional investors, financial systems, corporate governance, markets vs. hierachies, theory of the firm
    JEL: G20 G30 L14 L22
    Date: 2005–10–01
  6. By: Yishay D. Maoz
    Abstract: The effect that investment lags has on the uncertainty-investment relationship is studied by modifying the Bar-Ilan and Strange (1996) model in a manner that enables analytical solution. It turns out that: (i) If the time lag is sufficiently small, uncertainty affects investment negatively; (ii) A sufficiently large time lag engenders an inverse u-shape relationship between the degree of uncertainty and the profit level that triggers investment; (iii) When such an inverse u- shape exists, the higher is the length of the time lag (or the degree of profit convexity) the wider is the range of a positive uncertainty- investment relationship.
    Keywords: Investment, Uncertainty, Time to build
    JEL: D81
    Date: 2005–10–06
  7. By: Avimanyu Datta (Independent Researcher); Sukumar RayChaudhuri (Burdwan University)
    Abstract: Combining and Extending the concepts of fluid viscosity, system dynamics and Cobb-Douglas production function, an attempt was made to propose a theoretical framework that models the effect of organizational structure on organizational self-renewal and knowledge diffusion. It was showed that rigidity in organizational structure creates an organizational viscosity (due to vertical layers of management) and conflict of interest (between functional divisions), that affects both the self- renewal exercise and Knowledge Diffusion, which are the two most integral aspects of staying competitive in volatile business environment. It was illustrated that with the increase in the rigidity of the organizational structure causes decrease in its self-renewal exercise and diffusion of knowledge. Ironically, the model also shows that absence of any structure also has a negative impact on organizational self-renewal and knowledge diffusion. Based on its self- renewal capability organizations are categorized here, as innovators, adapters (both early and late), laggards and virtual innovators. The model explained, graphically, how knowledge diffusion decreases the time to innovate.
    Keywords: Knowledge Carriers (KC), Organizational Viscosity, Damping Ratio, Organization Self-Renewal, Steady State, Knowledge Diffusion, fluid viscosity, system dynamics and Cobb-Douglas production function.
    JEL: C6 D5 D9
    Date: 2005–10–02
  8. By: Dermot Leahy (University College Dublin); Catia Montagna (University of Dundee)
    Abstract: This paper examines Foreign Direct Investment in the presence of labour unions. An oligopoly model is developed in which identical firms locate in a host country in order to export to a foreign country. These firms are unionised and compete with foreign firms on the foreign market. We consider the incentives for social dumping via restrictive labour legislation which we assume can be used by the host country government to affect the bargaining power of unions. We ask whether it is in the interest of the importing foreign country for the host country to relax or to tighten labour laws.
    Keywords: Foreign Direct Investment, Labour Unions, Labour Legislation, Social Dumping, Exports.
    JEL: F12 L13
    Date: 2005–10–05
  9. By: Juha Kilponen (Bank of Finland); Pekka Sinko (Prime Minister's Office)
    Abstract: This paper studies implications of centralised wage setting for the level of taxation and public expenditure in an analytical model with unionised labour markets. We extend the previous studies by allowing for both demand and supply effects of labour. Also, in addition to the standard social planner approach, we consider a political economy set up, where the tax rate is chosen to maximise the welfare of a median voter. Our results suggest that when working hours are endogenous, the relationship between the degree of centralisation and the labour tax rate is ambiguous. In particular, if the marginal utility from public provision is sufficiently low, centralised wage setting implies lower optimal tax rate on labour. This is due to a 'budgetary discipline effect', which reduces the optimal tax rate preferred by the median voter under centralised wage setting.
    Keywords: Taxation, wage setting, public expenditure, median voter
    JEL: J
    Date: 2005–09–30
  10. By: Adalberto Cardoso
    Date: 2004
  11. By: Jed DeVaro (Cornell University)
    Abstract: I estimate the effect of team production on labor productivity and product quality using a cross section of British establishments. A distinguishing feature of this study is its use of a structural model that treats as endogenous the organizations’ choices of teams and whether or not to grant autonomy to team members. One of the main findings is that the typical establishment enjoys statistically significant increases in labor productivity (but not product quality) from using teams, though there is no statistically significant difference between the predicted gains from autonomous versus non- autonomous teams. I show that standard methodological approaches that treat teams and autonomy as exogenous induce biases of two forms: 1) the benefits from teams are inflated, 2) the benefits of autonomous teams relative to those of non-autonomous teams are inflated. Both biases are particularly severe in the case of product quality.
    Keywords: teams, autonomy, labor productivity, product quality
    JEL: J
    Date: 2005–10–05
  12. By: Kevin E. Cahill; Michael D. Giandrea; Joseph F. Quinn (Boston College)
    Abstract: This paper investigates whether permanent, one-time retirements are coming to an end just as the trend towards earlier and earlier retirements did nearly 20 years ago. We explore how common bridge jobs are among today's retirees, and how uncommon traditional retirements have become. Methods: Using data from the Health and Retirement Study (HRS), we explore the work histories and retirement patterns of a cohort of retirees aged 51 to 61 in 1992 over a ten-year time period in both a cross-sectional and longitudinal context. Bridge job determinants are examined using bivariate comparisons and a multinomial logistic regression model of the bridge job decision. Results: We find that one-half to two-thirds of the HRS respondents with full-time career jobs take on bridge jobs before exiting the labor force completely. We also find that bridge job behavior is most common among younger respondents, respondents without defined-benefit pension plans, and respondents at the lower- and upper-end of the wage distribution. Implications: The evidence suggests that changes in the retirement income landscape since the 1980s appear to be taking root. Going forward, traditional retirements will be the exception rather than the rule.
    Keywords: Economics of Aging, Partial Retirement, Gradual Retirement
    JEL: J26 J14 J32 H55
    Date: 2005–09–29
  13. By: Carlsson, Evert (Centre for finance, School of Business, Economics and Law); Erlandzon, Karl (Department of Economics, School of Business, Economics and Law)
    Abstract: This paper investigates some welfare effects of forced saving through a mandatory pension scheme. The framework for the analysis is a life-cycle model of a borrowing constrained individual´s consumption and portfolio choice in the presence of uncertain labour income and realistically calibrated tax and pension systems. Pension benefits stem from both a defined benefit and a notionally defined contribution part, the latter being indexed to stochastic aggregate labour income. We show that agents attribute little value to their pension savings in early life. Furthermore, we estimate the welfare loss for individuals in mid-life associated with the dependency between pension returns and labour income growth to 1.2% in annual consumption. <p>
    Keywords: Life-cycle; portfolio choice; pensions
    JEL: D91 G11 G23
    Date: 2005–09–23
  14. By: Miguel A. Malo; Fernando Munoz-Bullon
    Abstract: In this article, we evaluate the influence that employment promotion measures designed for disabled people have on the latter’s job matching quality through the use of matching analysis. We focus on two aspects of quality: the type of contract held (either permanent or temporary) and whether or not the individual is searching for another job. We find that employment promotion measures do not improve the match’s job quality. Furthermore, the use of specialized labour market intermediation services by disabled individuals does not affect their job matching quality. As an additional contribution, our definition of disability eludes the self-justification bias.
    Date: 2005–09
  15. By: Richard Arnott (Boston College)
    Abstract: This paper looks at parking policy in dense urban districts ("downtown"), where spatial competition between parking garages is a key feature. The paper has four parts. The first looks at the "parking garage operator's problem". The second derives the equilibrium in the parking garage market when there is no on-street parking, compares the equilibrium to the social optimum, and examines parking policy in this context. The third considers how the presence of on-street parking alters the analysis, and the fourth extends the analysis to include mass transit.
    Keywords: parking, off-street parking, on-street parking, parking garages, mass transit, parking policy, second best, spatial competition
    JEL: R40 L91
    Date: 2005–09–30
  16. By: Edin, Per-Anders (IFAU - Institute for Labour Market Policy Evaluation); Gustavsson, Magnus (Department of Economics , Uppsala University)
    Abstract: This paper investigates the role of skill depreciation in the relationship between work interruptions and subsequent wages. Using unique longitudinal microdata containing information on the ability to understand and practically employ printed information, we are able to analyze changes in skills for individuals as a function of time out of work. In general, we find statistically strong evidence of a negative relationship between work interruptions and skills. Our analysis suggests that depreciation of general information-processing skills is economically significant, with a full year of non-employment being equivalent to moving 5 percentiles down the skill distribution.
    Keywords: Work interruptions; skill depreciation; wage differentials
    JEL: J24 J31
    Date: 2005–09–01
  17. By: Kiyoshi Urakami (Urakami Asia Management Research)
    Abstract: Electronics products originating either from the U.S.A. or Europe have experienced tremendous shifts to the Asian countries such as Japan, Korea, Taiwan and China. This paper examines the recent development of Chinafs electronics industry where a significant degree of foreign direct investment has enhanced the industrial accumulation. Based on the survey on the IT industry (personal computer, mobile phone and semiconductor) in China, business status in both Chinese and Japanese companies will be analyzed and future strategic directions for Japanese firms in the gAsian Ageh will be discussed.
    Keywords: the gAsian Ageh, originated from the U.S.A., business models, gMao, Gong, Jih method, the Asian talents, multilateral collaboration
    JEL: F1 F2
    Date: 2005–09–30
  18. By: David Neumark; Junfu Zhang; Brandon Wall
    Abstract: We analyze and assess new evidence on employment dynamics from a new data source  the National Establishment Time Series (NETS). The NETS offers advantages over existing data sources for studying employment dynamics, including tracking business establishment relocations that can contribute to job creation or destruction on a regional level. Our primary purpose in this paper is to assess the reliability of the NETS data along a number of dimensions, and we conclude that it is a reliable data source although not without limitations. We also illustrate the usefulness of the NETS data by reporting, for California, a full decomposition of employment change into its six constituent processes, including job creation and destruction stemming from business relocation, which has figured prominently in policy debates but on which there has been no systematic evidence.
    JEL: J2 C8 L0
    Date: 2005–10
  19. By: Michael Kvasnicka (Humboldt-University Berlin)
    Abstract: Based on administrative data from the federal employment office in Germany, we apply matching techniques to estimate the stepping-stone function of temporary agency work for the unemployed, i.e. its short-run and long-run effects on their future employment prospects. Our results show that unemployed workers who take up a job in the temporary work agency (TWA) industry are on average more likely than unemployed workers not joining TWA work to be in agency employment in the four year period these workers are tracked after entering TWA work. However, we find no discernable effects on the probabilities of being either in regular employment or registered unemployment. Our findings therefore do not lend support to the stepping-stone function of temporary agency work.
    Keywords: Temporary work agencies, stepping stone, evaluation, matching
    JEL: C14 C41 J41 J64
    Date: 2005–10–06

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