nep-bec New Economics Papers
on Business Economics
Issue of 2008‒04‒21
eleven papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Did Wages Reflect Growth in Productivity? By Martin S. Feldstein
  2. Institutions and Contract Enforcement By Falk, Armin; Huffman, David; MacLeod, W. Bentley
  3. A Model of Vertical Oligopolistic Competition By Reisinger, Markus; Schnitzer, Monika
  4. Dispersion in Wage Premiums and Firm Performance By Pedro S. Martins
  5. Union Decline in Britain By Blanchflower, David G.; Bryson, Alex
  6. The Effect of Firm- and Industry-Level Contracts on Wages – Evidence from Longitudinal Linked Employer-Employee Data By Gürtzgen, Nicole
  7. Learning by Doing vs. Learning from Others in a Principal-Agent Model By Jasmina Arifovic; Alexander Karaivanov
  8. The Incidence and Determinants of Employee Involvement - Evidence from Finnish Manufacturing Sector By Derek C. Jones; Panu Kalmi; Takao Kato; Mikko Mäkinen
  9. Effects of Firm Size and Business Cycle on Earning Losses of Displaced Workers By Oliver Ruf
  10. Cartel Organization and Antitrust Enforcement By Zhijun
  11. The Hierarchical Structure of the Firm: A Geometric Perspective By Kam Ki Tang; Leopoldo Yanes

  1. By: Martin S. Feldstein
    Abstract: The level of productivity doubled in the U.S. nonfarm business sector between 1970 and 2006. Wages, or more accurately total compensation per hour, increased at approximately the same annual rate during that period if nominal compensation is adjusted for inflation in the same way as the nominal output measure that is used to calculate productivity. Total employee compensation as a share of national income was 66 percent of national income in 1970 and 64 percent in 2006. This measure of the labor compensation share has been remarkably stable since the 1970s. It rose from an average of 62 percent in the decade of the 1960s to 66 percent in the decades of the 1970s and 1980s and then declined to 65 percent in the decade of the 1990s where it has again been from 2000 until the most recent quarter.
    JEL: E24 J3
    Date: 2008–04
  2. By: Falk, Armin (University of Bonn); Huffman, David (Swarthmore College); MacLeod, W. Bentley (Columbia University)
    Abstract: We provide evidence on how two important types of institutions – dismissal barriers, and bonus pay – affect contract enforcement behavior in a market with incomplete contracts and repeated interactions. Dismissal barriers are shown to have a strong negative impact on worker performance, and market efficiency, by interfering with firms' use of firing threat as an incentive device. Dismissal barriers also distort the dynamics of worker effort levels over time, cause firms to rely more on the spot market for labor, and create a distribution of relationship lengths in the market that is more extreme, with more very short and more very long relationships. The introduction of a bonus pay option dramatically changes the market outcome. Firms are observed to substitute bonus pay for threat of firing as an incentive device, almost entirely offsetting the negative incentive and efficiency effects of dismissal barriers. Nevertheless, contract enforcement behavior remains fundamentally changed, because the option to pay bonuses causes firms to rely less on long-term relationships. Our results show that market outcomes are the result of a complex interplay between contract enforcement policies and the institutions in which they are embedded.
    Keywords: employment protection, efficiency wages, bonus pay, incomplete contracts, firing costs, experiment
    JEL: J41 J3 C9 D01
    Date: 2008–04
  3. By: Reisinger, Markus; Schnitzer, Monika
    Abstract: This paper develops a model of successive oligopolies with endogenous market entry, allowing for varying degrees of product differentiation and entry costs in both markets. Our analysis shows that the downstream conditions dominate the overall profitability of the two-tier structure while the upstream conditions mainly affect the distribution of profits. We compare the welfare effects of upstream versus downstream deregulation policies and show that the impact of deregulation may be overvalued when ignoring feedback effects from the other market. Furthermore, we analyze how different forms of vertical restraints influence the endogenous market structure and show when they are welfare enhancing.
    Keywords: Deregulation; Free Entry; Price Competition; Product Differentiation; Successive Oligopolies; Two-Part Tariffs; Vertical Restraints
    JEL: L13 D43 L40 L50
    Date: 2008–04–09
  4. By: Pedro S. Martins
    Abstract: Using matched employer-employee panel data, we estimate measures of pay dispersion per firm-year that take into account both rm and worker unobserved heterogeneity. Unlike research that controls only for differences in observables, we nd that within-firm pay inequality is significantly associated to lower firm performance.
    Keywords: Wage policies, Worker heterogeneity, Fairness
    JEL: M52 J31 D24
    Date: 2008–05
  5. By: Blanchflower, David G. (Bank of England); Bryson, Alex (Policy Studies Institute)
    Abstract: This paper investigates the demise of unionisation in British private sector workplaces over the last quarter century. We show that dramatic union decline has occurred across all types of workplace. Although the union wage premium persists it is quite small in 2004. Negative union effects on employment growth and financial performance are largely confined to the 1980s. Managerial perceptions of the climate of relations between managers and workers have deteriorated since the early 1980s across the whole private sector, whether the workplace is unionised or not.
    Keywords: trade unions, wages, employment growth, financial performance
    JEL: J51
    Date: 2008–04
  6. By: Gürtzgen, Nicole
    Abstract: Using a large linked employer-employee data set, this paper presents new evidence on the wage premium under collective bargaining contracts in western and eastern Germany. The novel feature of our analysis is that we use a longitudinal data set. In contrast to previous studies, we seek to assess the extent to which differences in wages between workers in covered and uncovered firms arise from the non-random selection of workers and firms into the different regimes. By measuring the relative wage gains or losses of workers employed in firms that change contract status, we obtain estimates that depart considerably from previous results relying on cross-sectional data. Industrylevel contracts in western Germany and firm-level contracts in eastern Germany are associated with a small, but statistically significant average wage premium of about 2 per cent. Finally, results from a trend-adjusted differencein - difference approach indicate that the industry-level wage premium in western Germany might be downward biased and the firm-level premium in eastern Germany might still be upward biased, once differences in pre-transition wage growth are accounted for.
    Keywords: Union Wage Premium, Collective Bargaining Coverage
    JEL: J31 J51
    Date: 2007
  7. By: Jasmina Arifovic (Simon Fraser University); Alexander Karaivanov (Simon Fraser University)
    Abstract: We introduce learning in a principal-agent model of stochastic output sharing under moral hazard. Without knowing the agents' preferences and technology the principal tries to learn the optimal agency contract. We implement two learning paradigms - social (learning from others) and individual (learning by doing). We use a social evolutionary learning algorithm (SEL) to represent social learning. Within the individual learning paradigm, we investigate the performance of reinforcement learning (RL), experience-weighted attraction learning (EWA), and individual evolutionary learning (IEL). Overall, our results show that learning in the principal-agent environment is very difficult. This is due to three main reasons: (1) the stochastic environment, (2) a discontinuity in the payoff space in a neighborhood of the optimal contract due to the participation constraint and (3) incorrect evaluation of foregone payoffs in the sequential game principal-agent setting. The first two factors apply to all learning algorithms we study while the third is the main contributor for the failure of the EWA and IEL models. Social learning (SEL), especially combined with selective replication, is much more successful in achieving convergence to the optimal contract than the canonical versions of individual learning from the literature. A modified version of the IEL algorithm using realized payoff evaluation performs better than the other individual learning models; however, it still falls short of the social learning's ability to converge to the optimal contract.
    Keywords: learning, principal-agent model, moral hazard
    JEL: D83 D86 C63
    Date: 2007–11
  8. By: Derek C. Jones; Panu Kalmi; Takao Kato; Mikko Mäkinen
    Abstract: ABSTRACT : In this paper, we present preliminary empirical findings on the incidence of employee involvement practices in the Finnish manufacturing sector. The novel survey on EI practices is based on a representative random sample from the population of the Finnish manufacturing firms who had 50 or more employees in 2005. Our main findings are that employee involvement practices are widespread in Finnish firms, although there is variation in the use of individual practices. Job rotation and satisfaction surveys are the most common practices and board representation the least common. Studying the determinants of these practices, we find evidence that they are more commonly used in larger firms and in firms that use heavily other advanced management practices.
    Keywords: new workplace practices, HRM, employee participation
    JEL: M54 J41 J53 C21
    Date: 2008–04–07
  9. By: Oliver Ruf
    Abstract: This paper analyzes labor market success of workers who are displaced in boom versus recession periods. Moreover, the empirical analysis contrasts workers from small firms and large firms. The idea is that displacement carries no information about workers' productivity in large firms but is a signal of low productivity in small firms. This signal is stronger when the plant closure occurs in a boom period than in a recession period. Results indicate that the (i) state of the business cycle is important for influence the effect of displacement on labor market success and (ii) the effect differs by the size of the firm. In large firms, displaced workers suffer from larger earning losses when displacement occurs in recession compared to boom, the opposite result is found for workers displaced from small firms.
    Keywords: Displaced workers, wage losses, business cycle, size of the firm
    JEL: E32 J64 J65
    Date: 2008–04
  10. By: Zhijun (ESRC Centre for Competition Policy, University of East Anglia)
    Abstract: This paper incorporates the economic theory of organizations into the framework of public law enforcement, and characterizes the dual-coalition structure of cartel organization that allows us to highlight the strategic interactions between cartel participants under different antitrust policies. We show that delegation of authorities over collusive decisions from top executives to subordinates can mitigate the temptation of renege on collusive relationships and thus contributes to facilitating collusion. This result parallels the insights in Baker, Gibbons and Murphy (2002, 2006) which find that the optimal allocation of decision rights is to minimize the maximum temptation to renege on relational contracts. Moreover, the efficiency gains of delegation in facilitating collusion can be mitigated when the corporate leniency program is introduced, in particular whenever it is unlikely to detect cartels absent leniency and the corporate liability is muc more significant than individual liability.
    Keywords: cartel organization, antitrust enforcement, leniency programs
    JEL: D23 K21 L41
    Date: 2008–04
  11. By: Kam Ki Tang; Leopoldo Yanes (School of Economics, The University of Queensland)
    Abstract: This paper incorporates hierarchical structure into the neoclassical theory of the firm. Firms are hierarchical in two respects: the organization of workers in production and the wage structure. The firm’s hierarchy is represented as a sector of a circle, where the radius represents the hierarchy’s height, the width of the sector represents the breadth of the hierarchy at a given height, and the angle of the sector represents span of control. A perfectly competitive firm chooses height and width, as well as capital, in order to maximize profit. We analyze the short run and long run impact of changes in scale economies, input substitutability, and input and output prices on the firm’s hierarchical structure. We find that the firm grows as the specialization of its workers increases or as its output price increases relative to input prices. The effect of changes in scale economies is contingent on the price of output. The model also brings forth an analysis of wage inequality within the firm, which is found to be independent of the firm’s hierarchical organization of workers, and only depends on the firm’s wage schedule.
    Keywords: Theory of the firm; Hierarchical structure; Economies of scale; Input substitutability; Inequality
    Date: 2008

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