nep-bec New Economics Papers
on Business Economics
Issue of 2008‒06‒07
23 papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Union Density and Varieties of Coverage: The Anatomy of Union Wage Effects in Germany By Bernd Fitzenberger; Karsten Kohn; Alexander C. Lembcke
  2. Stylized Facts and Other Empirical Evidence on Firm Dynamics, Business Cycle and Growth By Pedro Rui Mazeda Gil
  3. New Workplace Practices and Firm Performance: A Comparative Study of Italy and Britain By Cristini, Annalisa; Pozzoli, Dario
  4. Union Decline in Britain By D Blanchflower; Alex Bryson
  5. Worker Churning and Firms’ Wage Policies By Pedro S. Martins
  6. Why Do Firms Train Apprentices? The Net Cost Puzzle Reconsidered By Mohrenweiser, Jens; Zwick, Thomas
  7. On Factors explaining Organizational Innovation and its Effects By Koson Sapprasert
  8. Private Sector Employment Growth, 1998-2004: A Panel Analysis of British Workplaces By Alex Bryson; Satu Nurmi
  9. Mergers, cartels and leniency programs : the role of production capacities By Emilie Dargaud
  10. Job Security as an Endogenous Job Characteristic By Jahn, Elke J.; Wagner, Thomas
  11. Labor Market Reforms, Job Instability, and the Flexibility of the Employment Relationship By Niko Matouschek; P Ramezzana; Frédéric Robert-Nicoud
  12. Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels By Steven J. Davis; James A. Kahn
  13. Outsourcing and Offshoring in Canada By Baldwin, John R.; Gu, Wulong
  14. Multinational Firms, Monopolistic Competition and Foreign Investment Uncertainty By Arunish Chawla
  15. Embodied Technological Progress and the Productivity Slowdown in Japan By TOKUI Joji; INUI Tomohiko; Young Gak KIM
  16. Monopolistic Competition, International Trade and Firm Heterogeneity - a Life Cycle Perspective By Hansen, Jørgen Drud; Kvedaras, Virmantas; Nielsen, Jørgen Ulff-Møller
  17. Bank Structure and the Terms of Lending to Small Businesses By Rodrigo Canales; Ramana Nanda
  18. Divergence in Labor Market Institutions and International Business Cycles By Raquel Fonseca; Lise Patureau
  19. Durable goods inventories and the Great Moderation By James A. Kahn
  20. Dynamic factor models with time-varying parameters: measuring changes in international business cycles By Marco Del Negro; Christopher Otrok
  21. Intensity of Competition and Market Structure in the Italian Banking Industry By Giannetti, C.
  22. Effects of management control systems on commitment in inter-organizational relationships By Juan M. Ramon-Jeronimo; M. Concepcion Alvarez-Dardet Espejo; David Naranjo-Gil
  23. Perfect Competition in an Oligoply (including Bilateral Monopoly) By Pradeep Dubey und Dieter Sondermann

  1. By: Bernd Fitzenberger; Karsten Kohn; Alexander C. Lembcke
    Abstract: Collective bargaining in Germany takes place either at the industry level or at the firm level; collective bargaining coverage is much higher than union density; and not all employees in a covered firm are necessarily covered. This institutional setup suggests to distinguish explicitly union power as measured by net union density (NUD) in a labor market segment, coverage at the firm level, and coverage at the individual level. Using linked employer-employee data and applying quantile regressions, this is the first empirical paper which simultaneously analyzes these three dimensions of union influence on the structure of wages. Ceteris paribus, a higher share of employees in a firm covered by industry-wide or firm-level contracts is associated with higher wages. Yet, individual bargaining coverage in a covered firm shows a negative impact both on the wage level and on wage dispersion. A higher union density reinforces the effects of coverage, but the effect of union density is negative at all points in the wage distribution for uncovered employees. In line with an insurance motive, higher union density compresses the wage structure and, at the same time, it is associated with a uniform leftward movement of the distribution for uncovered employees.
    Keywords: union density, collective bargaining coverage, wage structure, quantile regression, linked employer-employee data, Structure of Earnings Survey 2001, Germany
    JEL: J31 J51 J52
    Date: 2008–03
  2. By: Pedro Rui Mazeda Gil (Faculdade de Economia, Universidade do Porto and CEMPRE, Rua Dr Roberto Frias, 4200-464, Porto, Portugal.)
    Abstract: In this paper, we bring together in a systematised fashion the scattered empirical evidence relating firm dynamics and both short-run and long-run macroeconomic dynamics. There are numerous studies that focus on firm-level data while controlling for macroeconomic conditions, which cover a considerable range of variables, industries and countries. From these studies it has emerged what is by now a rather robust set of empirical regularities, or stylized facts, about entry, exit, growth and the size distribution of firms. On the contrary, the literature that focus explicitly on the interplay between firm dynamics and the business cycle is roughly confined to the US experience and to the cyclical properties of firm entry and exit, whereas systematic studies about the relationship between firm dynamics and economic growth are almost non-existent whatsoever.
    Keywords: empirical evidence, firm dynamics, business cycle, economic growth
    JEL: L11
    Date: 2008–05
  3. By: Cristini, Annalisa (Department of Economics); Pozzoli, Dario (Department of Economics, Aarhus School of Business)
    Abstract: Using data from the 2004 Workplace Employee Relations Survey on British establishments and two surveys on manufacturing firms located in the North of Italy, we look at the diffusion of new workplace practices in the two countries and at their impact on the firm's value added. We find that the adoption of innovation practices has spread substantially more across the British manufacturing firms than across the Italian ones; however our results also indicate that the practices' association with the firms' VA is much lower in Britain than in Italy. The counterfactual analysis shows that had the Italian workplaces the same characteristics of the British ones, in terms of diffusion of practices, capital intensity and skills, their average predicted value added would triplicate. On the other hand, were the Italian establishments to move and operate in the British context, their performance would improve very modestly. For the British establishments, we also investigate whether management practices improve job satisfaction.
    Keywords: Workplace practices; Financial Performance; Italy; UK
    JEL: C33 J41 J53 L20
    Date: 2008–05–01
  4. By: D Blanchflower; Alex Bryson
    Abstract: This paper investigates the demise of unionisation in British private sectorworkplaces over the last quarter century. We show that dramatic union decline hasoccurred across all types of workplace. Although the union wage premium persistsit is quite small in 2004. Negative union effects on employment growth andfinancial performance are largely confined to the 1980s. Managerial perceptions ofthe climate of relations between managers and workers has deteriorated since theearly 1980s across the whole private sector, whether the workplace is unionised ornot.
    Keywords: trade unions, employment growth, financial performance, industrialrelations
    JEL: J51
    Date: 2008–04
  5. By: Pedro S. Martins
    Abstract: If a random firm were to increase its wages, would that decrease the firm’s churning (“excessive” worker reallocation)? Although the trade-off between wage and churning costs has received attention in both the labour and HRM literatures, there seems to be no evidence about the causal impact of wages upon churning. This paper seeks to fill that gap by considering detailed Portuguese matched employer-employee panel data and different identification methods. After presenting comprehensive evidence about job and worker flows and churning, we find that even models based on within-firm time differences do still generate the negative association between wages and turnover found in most research. However, that result no longer holds when we consider instrumental variables based on minimum wages determined by collective bargaining arrangements. One possible interpretation of our finding is that workers’ effort may not be sufficiently sensitive to wages: employers may replace workers priced out of the labour market with more skilled individuals, so that churning does not fall.
    Keywords: Worker Turnover, Endogeneity, Personnel Economics, Efficiency Wages
    JEL: J31 J50 J63 M50
    Date: 2008–05
  6. By: Mohrenweiser, Jens; Zwick, Thomas
    Abstract: This paper investigates the short-term costs and benefits of apprenticeship training in Germany. It calls into question the popular stylised fact that apprenticeship training always leads to net costs during the apprenticeship period. We analyse the impact of the proportion of different occupational groups of apprentices on firm performance. We use representative matched employer–employee panel data that allow us to correct for different sources of estimation bias. We show that the proportion of apprentices in trade, commercial, craft and construction occupations has a direct positive impact on firm performance: the companies cover their training costs immediately. In contrast, companies with apprentices in the manufacturing occupations face net training costs during the apprenticeship period but gain by the long-term employment of its graduate apprentices.
    Keywords: apprenticeship training, performance, panel data estimation
    JEL: C33 D24 J24
    Date: 2008
  7. By: Koson Sapprasert (Centre for Technology, Innovation and Culture, University of Oslo)
    Abstract: This paper shows how the probability of attempts at organizational innovation and its effects can be explained by firm age and size and other determinants. The integrated firm-level dataset obtained from the latest two Norwegian Community Innovation Surveys (CIS3 & 4) and annual accounts is used to investigate these complex relationships. The analysis employing Heckman two-step estimation to correct potential sample selection bias demonstrates that firm age and size have different impacts on the firm’s decision to undertake organizational innovation and on the effects of such innovation on firm performance. Older and larger firms are found to be more inclined to make an attempt at organizational change; while, concerning the outcome, smaller firms are more able to benefit from such an attempt. The results further reveal that different types of organizational change do foster firm performance where even greater effects can be led by persistence of organizational innovation as well as complementarity of organizational and technological innovation. In addition, it is evidence that past economic performance and high costs of innovation influence the firm’s decision to pursue organizational change.
    Keywords: Organizational Innovation, Age & Size, Structural Inertia, Firm Performance, Complementarity, Persistence.
    JEL: L25 O21 O39
    Date: 2008–06
  8. By: Alex Bryson; Satu Nurmi
    Abstract: Using nationally representative panel data for British private sector workplaces this paperpoints to the importance of distinguishing between workplace and firm size when analysingemployment growth, and finds that the factors associated with growth differ markedlybetween single independent establishments and those belonging to multi-site firms. Resultsalso differ according to whether one adjusts for sample selection arising from workplacesurvival, and according to whether one distinguishes between growth per se and internal,organic employment growth. We find evidence at the plant level that is consistent withcreative job destruction.
    Keywords: employment growth, workplace survival, workplace age, workplace size, humancapital, sunk costs
    JEL: J21 J23
    Date: 2008–04
  9. By: Emilie Dargaud (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France)
    Abstract: In this paper, we study the impact of a merger on collusion depending on the endowment of capital asset among firms. We show that the merger makes the collusion easier to sustain when asymmetric capital stock combines with less efficient insiders because of more symmetric conditions and closer incentive constraints. Moreover, this model allows us to determine an optimal threshold of asymmetry among insiders and outsiders such as a merger has pro-competitive effects and we compare this value with the value which would restore perfect symmetry between firms after the merger.
    Keywords: leniency programs, merger, oligopoly supergame
    JEL: K42 L11 L41
    Date: 2008
  10. By: Jahn, Elke J. (Department of Economics, Aarhus School of Business); Wagner, Thomas (University of Applied Sciences)
    Abstract: This paper develops a hedonic model of job security (JS). Workers with heterogeneous JS-preferences pay the hedonic price for JS to employers, who incur labor-hoarding costs from supplying JS. In contrast to the Wage-Bill Argument, equilibrium unemployment is strictly positive, as workers with weak JS-preferences trade JS for higher wages. The relation between optimal job insecurity and the perceived dismissal probability is hump-shaped. If firms observe demand, but workers do not, separation is not contractible and firms dismiss workers at-will. Although the workers are risk-averse, they respond to the one-sided private information by trading wage-risk for a higher JS. With two-sided private information, even JS-neutral workers pay the price for a JS guarantee, if their risk premium associated with the wage-replacement risk is larger than the social net loss from production.
    Keywords: job security; hedonic market; implicit contract theory; guaranteed employment contract; severance pay contract; asymmetric information; prudence
    JEL: D86 J41 J65 K31
    Date: 2008–04–01
  11. By: Niko Matouschek; P Ramezzana; Frédéric Robert-Nicoud
    Abstract: We endogenize separation in a search model of the labor market and allow for bargaining over the continuation of employment relationships following productivity shocks to take place under asymmetric information. In such a setting separation may occur even if continuation of the employment relationship is privately efficient for workers and firms. We show that reductions in the cost of separation, owing for example to a reduction in firing taxes, lead to an increase in job instability and, when separation costs are initially high, may be welfare decreasing for workers and firms. We furthermore show that, in response to an exogenous reduction in firing taxes, workers and firms may switch from rigid to flexible employment contracts, which further amplifies the increase in job instability caused by policy reform.
    Keywords: search, bargaining, asymmetric information, labor market reform
    JEL: J41 D82
    Date: 2008–04
  12. By: Steven J. Davis; James A. Kahn
    Abstract: We review evidence on the Great Moderation in conjunction with evidence about volatility trends at the micro level. We combine the two types of evidence to develop a tentative story for important components of the aggregate volatility decline and its consequences. The key ingredients are declines in firm-level volatility and aggregate volatility -- most dramatically in the durable goods sector -- but the absence of a decline in household consumption volatility and individual earnings uncertainty. Our explanation for the aggregate volatility decline stresses improved supply-chain management, particularly in the durable goods sector, and, less important, a shift in production and employment from goods to services. We provide evidence that better inventory control made a substantial contribution to declines in firm-level and aggregate volatility. Consistent with this view, if we look past the turbulent 1970s and early 1980s much of the moderation reflects a decline in high frequency (short-term) fluctuations. While these developments represent efficiency gains, they do not imply (nor is there evidence for) a reduction in economic uncertainty faced by individuals and households.
    JEL: E32
    Date: 2008–05
  13. By: Baldwin, John R.; Gu, Wulong
    Abstract: This paper has three main objectives. First, it presents the long-term trends in outsourcing and offshoring across Canadian industries. Second, it examines the relationship between offshoring and changes in trade patterns at the industry level. It focuses on two major drivers that some have suggested are behind the recent trends toward offshoring: globalization and technological changes associated with information and communications technologies. Third, the paper examines the economic impact of offshoring by investigating the relationship between the extent of offshoring and productivity growth, shifts to high value-added activities and changes in labour markets.
    Keywords: International trade, Business performance and ownership, Business adaptation and adjustment
    Date: 2008–05–23
  14. By: Arunish Chawla
    Abstract: This is a model of multinational firms, which introduces option value of foreign directinvestment, into a framework of Dixit-Stiglitz type monopolistic competition. Starting from apure trading equilibrium and solving for the optimal investment rule gives a scale-up factorwhich implies existence of a wedge between markup revenues and foreign investment costs.Greater volatility and risk aversion increase this scale-up over foreign investment costsimplying a delay in the exercise of FDI option, while growing market size and nationalincome facilitate early exercise. The model is extended to include a Poisson jump process,which has policy implications for FDI reforms and explains 'wait and watch' behaviour ofmultinational firms better than a pure comparative advantage-trade cost framework does.While investment under uncertainty literature is based on the theory of call options, I solve'FDI option' as a put option, thereby also enriching the theory of real options.
    Keywords: Multinational firm, monopolistic competition, foreign investment uncertainty,FDI option
    JEL: F21 F23
    Date: 2008–04
  15. By: TOKUI Joji; INUI Tomohiko; Young Gak KIM
    Abstract: Concerns over the rise in the vintage of capital in the Japanese economy have focused attention on the technological progress embodied in capital. In this paper, we derive the theoretical relationship between the rate of technological progress embodied in capital, the obsolescence rate of capital, and the average vintage of capital, then we estimate these rates by using firm-level panel data from the Ministry of Economy, Trade and Industry (METI) Basic Survey of Japanese Business Structure and Activities in the period between 1997 and 2002. To measure the obsolescence rate of capital by estimating the production function, it is necessary to construct a capital stock series that takes only physical depreciation into account for each vintage capital held by each firm. To do that, we prepared industry-specific patterns of the physical depreciation ratio of capital goods, based on the pattern of the physical depreciation ratio of each type of capital goods by obtaining information from the U.S. Bureau of Labor Statistics (BLS), and the Japan Industrial Productivity Database (JIP) 2006fs investment matrices cross-classified by types of capital goods and industries. We applied these industry-specific patterns of the physical depreciation ratio of capital goods to the individual firmsf investment series, constructing a capital stock series in each firm. We measured the obsolescence rate by estimating the production function, which is similar to the one employed in Sakellaris and Wilson (2004). We added several control variables to their equations. The estimated obsolescence rate of machinery and equipment is found to be between 8 and 22 percent per annum, which is very close to the estimated ratios in other previous research using the production function. This estimation result implies that the average rate of technological progress embodied in machinery and equipment is between 0.2 and 0.4 percent in Japan. The average vintage of capital in the manufacturing industry in the 1990s was estimated to increase by almost two years, because of weak investment during that decade, and it has the effect of lowering the rate of productivity growth in the industry by 0.4 to 0.8 percentage points.
    Date: 2008–06
  16. By: Hansen, Jørgen Drud (Department of Economics, Aarhus School of Business); Kvedaras, Virmantas (Department of Econometric Analysis); Nielsen, Jørgen Ulff-Møller (Department of Economics, Aarhus School of Business)
    Abstract: This paper presents a dynamic international trade model based on monopolistic competition, where observed intra-industry differences at a given point in time reflect different stages of the firm’s life cycle. New product varieties of still higher quality enter the market every period rendering old varieties obsolescent in a process of creative destruction. For given technology (variety) production costs decrease after an infant period due to learning. It is shown that several patterns of exports may arise depending primarily on the size of fixed trade costs. At a given point in time firms therefore differ due to different age, although all firms are symmetric in a life cycle perspective. The paper thus offers an alternative view on firm heterogeneity compared with other recent papers, where productivity differences appear as an outcome of a stochastic process.
    Keywords: Product innovations; learning; creative destruction; firm heterogeneity; export performance
    JEL: F12 F13
    Date: 2008–05–01
  17. By: Rodrigo Canales (MIT Sloan School of Management); Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: Using loan-level data from Mexico, we study the relationship between the organizational structure of banks and the terms of lending to small businesses. We find that banks with decentralized lending structures - where branch managers have autonomy over the terms of lending - give larger loans to small firms and those with more "soft information" - particularly in states with weak legal enforcement of financial contracts. However, decentralized banks are also more responsive to the competitive environment when setting loan terms. They are more likely to restrict credit and to charge higher interests rates when they have market power, more so to smaller firms that have fewer outside options for external finance. These findings highlight a 'darker side' to decentralized banks and suggest that the relative benefit of a decentralized bank structure for small business lending depends critically on the nature of the competitive environment in which banks are located.
    Keywords: Banks, Institutions, Entrepreneurship
    JEL: F22 L14 L26 L86 O17 O19
    Date: 2008–06
  18. By: Raquel Fonseca; Lise Patureau
    Abstract: This paper investigates the sources of business cycle comovement within the New Open Economy Macroeconomy framework. It sheds new light on the business cycle comovement issue by examining the role of cross-country divergence in labor market institutions. The authors first document stylized facts supporting that heterogeneous labor market institutions are associated with lower cross-country GDP correlations among OECD countries. They then investigate this fact within a two-country dynamic general equilibrium model with frictions on the good and labor markets. On the good-market side, they model monopolistic competition and nominal price rigidity. Labor market frictions are introduced through a matching function ˆ la Mortensen and Pissarides (1999). Their conclusions disclose that heterogenous labor market institutions amplify the crosscountry GDP differential in response to aggregate shocks. In quantitative terms, they contribute to reduce cross-country output correlation, when the model is subject to real and/or monetary shocks. Their overall results show that taking into account labor market heterogeneity improves their understanding of the quantity puzzle.
    Keywords: International business cycle, labor market institutions, wage bargaining
    JEL: E24 E32 F41
    Date: 2008–04
  19. By: James A. Kahn
    Abstract: This paper revisits the hypothesis that changes in inventory management were an important contributor to volatility reductions during the Great Moderation. It documents how changes in inventory behavior contributed to the stabilization of the U.S. economy within the durable goods sector, in particular, and develops a model of inventory behavior that is consistent with the key facts about volatility decline in that sector. The model is calibrated to evidence from survey data showing that lead times for materials orders in manufacturing shrank after the early 1980s. Simulations of the model show large reductions in the volatility of output growth and more modest reductions in the volatility of sales growth. In addition, the model addresses concerns raised by a number of researchers who criticize the inventory literature's focus on finished goods inventories, given that stocks of works-in-process and materials are actually larger and more volatile that those of finished goods. The model adapts the stockout-avoidance concept to a production-to-order setting and shows that much of the intuition and results regarding production volatility still apply.
    Keywords: Industrial productivity ; Manufactures ; Durable goods, Consumer
    Date: 2008
  20. By: Marco Del Negro; Christopher Otrok
    Abstract: We develop a dynamic factor model with time-varying factor loadings and stochastic volatility in both the latent factors and idiosyncratic components. We employ this new measurement tool to study the evolution of international business cycles in the post-Bretton Woods period, using a panel of output growth rates for nineteen countries. We find 1) statistical evidence of a decline in volatility for most countries, with the timing, magnitude, and source (international or domestic) of the decline differing across countries; 2) some evidence of a decline in business cycle synchronization for Group of Seven (G-7) countries, but otherwise no evidence of changes in synchronization for the sample countries, including European and euro-area countries; and 3) convergence in the volatility of business cycles across countries.
    Keywords: Time-series analysis ; International economic integration ; Business cycles ; Group of Seven countries
    Date: 2008
  21. By: Giannetti, C. (Tilburg University, Center for Economic Research)
    Abstract: This work tests the predictions of Sutton?s model of independent submarkets for the Italian retail banking industry. In the first part of this paper, I develop a model of endogenous mergers to evidence the relationship between firms? conduct, market entry and market structure. In the second part, I identify the submarket dimension and estimate the relationship between market size and market structure using data on bank branches. The size of the submarkets turned out to be at most provincial whereas the limiting concentration index - as argued by Sutton for industries with exogenous sunk costs - goes to zero as the market becomes larger.
    Keywords: Concentration;Truncated Poisson and Negative Binomial models;quantile regressions
    JEL: C24 D43 L11 L89
    Date: 2008
  22. By: Juan M. Ramon-Jeronimo (Department of Business Administration, Universidad Pablo de Olavide); M. Concepcion Alvarez-Dardet Espejo (Department of Business Administration, Universidad Pablo de Olavide); David Naranjo-Gil (Department of Business Administration, Universidad Pablo de Olavide)
    Abstract: This paper analyses how ex-ante control mechanisms and management control information affect commitment in buyer-supplier relationships. Using survey data from 191 purchasing and sales managers of original equipment manufacturers, this study examines five characteristics of management control information (scope, timeliness, aggregation, integration and symmetry), and two dimensions of ex-ante control mechanisms (coordination and influence). The analysis shows differences between purchasing manager–supplier relationships and sales manager–industrial client relationships. In both dyads coordination and timeliness increase commitment; in the latter, broad scope and partner influence also affect commitment.
    Keywords: Management control information sharing, control mechanisms, commitment.
    Date: 2008–05
  23. By: Pradeep Dubey und Dieter Sondermann
    Abstract: We show that if limit orders are required to vary smoothly, then strategic (Nash) equilibria of the double auction mechanism yield competitive (Walras) allocations. It is not necessary to have competitors on any side of any market: smooth trading is a substitute for price wars. In particular, Nash equilibria are Walrasian even in a bilateral monopoly.
    Keywords: Limit orders, double auction, Nash equilibria, Walras equilibria, mechanism design
    JEL: C72 D41 D44 D61

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