nep-bec New Economics Papers
on Business Economics
Issue of 2009‒04‒13
twenty papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Firm Heterogeneity and Wages Under Different Bargaining Regimes: Does a Centralised Union Care for Low-productivity Firms? By Gürtzgen, Nicole
  2. Advertising and Business Cycle Fluctuations By Benedetto Molinari; Francesco Turino
  3. Can Profit Sharing Lower Flexible Outsourcing? A Note By Koskela, Erkki; König, Jan
  4. Workplace Job Satisfaction in Britain: Evidence from Linked Employer-Employee Data By Haile, Getinet Astatike
  5. A Theory of Outsourcing and Wage Decline By Thomas J. Holmes; Julia Thornton Snider
  6. Corporate governance and impression management in annual press releases By Beatriz García Osma; Encarna Guillamón Saorín
  7. Is Bigger Still Better? The Decline of the Wage Premium at Large Firms By Even, William E.; Macpherson, David A.
  8. Wages And Seniority When Coworkers Matter: Estimating A Joint Production Economy Using Norwegian Administrative Data By Christopher Ferrall; Kjell G. Salvanes; Erik Ø. Sørensen
  9. Determinants of Export Behaviour of German Business Services Companies By Alexander Eickelpasch; Alexander Vogel
  10. The Governance and Performance of Research Universities: Evidence from Europe and the U.S. By Philippe Aghion; Mathias Dewatripont; Caroline M. Hoxby; Andreu Mas-Colell; André Sapir
  11. International Business Cycle Spillovers By Kamil Yilmaz
  12. The Breakdown of Morale By Nick Vikander
  13. Productivity Convergence Across Industries and Countries: The Importance of Theory-based Measurement By Inklaar, R.; Timmer, M.P.
  14. The Dynamics of Entrepreneurship: Hysteresis, Business Cycles and Government Policy By Congregado, Emilio; Golpe, Antonio A.; Parker, Simon C.
  15. Implications of Unprofitable Horizontal Mergers: A Positive External Effect does not Suffice to Clear a Merger! By Oliver Budzinski; Jürgen-Peter Kretschmer
  16. Outside and Inside Liquidity By Patrick Bolton; Tano Santos; Jose A. Scheinkman
  17. Marriage and Consumption By Laura Blow; Martin Browning; Mette Ejrnæs
  18. Comparitive Performance Analysis of European Airports by Means of Extended Data Envelopment Analysis By Soushi Suzuki; Peter Nijkamp; Eric Pels; Piet Rietveld
  19. Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets By Simon Gilchrist; Vladimir Yankov; Egon Zakrajsek
  20. Risk Matters: The Real Effects of Volatility Shocks By Jesus Fernandez-Villaverde; Pablo Guerron-Quintana; Juan F. Rubio-Ramírez; Martin Uribe

  1. By: Gürtzgen, Nicole
    Abstract: This paper studies the relationship between wages and the degree of firm heterogeneity in a given industry under different wage setting structures. To derive testable hypotheses, we set up a theoretical model that analyses the sensitivity of wages to the variability in productivity conditions in a unionsised oligopoly framework. The model distinguishes centralised and decentralised wage determination. The theoretical results predict wages to be negatively associated with the degree of firm heterogeneity under centralised wage-setting, as unions internalise negative externalities of a wage increase for low-productivity firms. We test this prediction using a linked employeremployee panel data set from the German mining and manufacturing sector. Consistent with our hypotheses, the empirical results suggest that under industry-level bargaining workers in more heterogeneous sectors receive lower wages than workers in more homogeneous sectors. In contrast, the degree of firm heterogeneity is found to have no negative impact on wages in uncovered firms and under firm-level contracts.
    Keywords: Wage-Setting Structure, Unions, Oligopoly, Linked Employer-Employee Data
    JEL: C23 J31 J51 L13
    Date: 2009
  2. By: Benedetto Molinari (Universidad Pablo de Olavide); Francesco Turino (Universidad de Alicante)
    Abstract: This paper provides new empirical evidence for quarterly U.S. aggregate advertisingexpenditures, showing that advertising has a well defined pattern over the BusinessCycle. To understand this pattern we develop a general equilibrium model wheretargeted advertising increases the marginal utility of the advertised good. Advertisingintensity is endogenously determined by profit maximizing firms. We embed thisassumption into an otherwise standard model of the business cycle withmonopolistic competition. We find that advertising affects the aggregate dynamics ina relevant way, and it exacerbates the welfare costs of fluctuations for the consumer.Finally, we provide estimates of our setup using Bayesian techniques.
    Keywords: Advertising, DSGE model, Business Cycle fluctuations, Bayesian
    JEL: D11 E32 J22 M37
    Date: 2009–03
  3. By: Koskela, Erkki (University of Helsinki); König, Jan (Free University of Berlin)
    Abstract: We analyze the following question associated with flexible outsourcing under imperfect domestic labour market: How does the implementation of profit sharing influence flexible outsourcing? We show that in general profit sharing has a negative effect on low skilled wage and thus an outsourcing decreasing character. However due to labour union determination of effort a constant effort level will result so that in this case firm's optimal choice of profit sharing is zero.
    Keywords: flexible outsourcing, profit sharing, labour market imperfection
    JEL: E24 J23 J33 J51 J82
    Date: 2009–03
  4. By: Haile, Getinet Astatike (Policy Studies Institute)
    Abstract: This paper examines the determinants of job satisfaction in Britain using nationally representative linked employer-employee data (WERS2004) and alternative econometric techniques. It uses eight facets of job satisfaction for the purpose. As well as underscoring the importance of accounting for unobserved workplace heterogeneity, the paper is able to highlight some new findings that relate to differential effects of dependent children and other dependents, type of employment contract and gaps between employees' skill and skills requirements of their job. Working long hours is found to be positively associated with intrinsic aspect of jobs. Public sector employment is positively associated with all facets of job satisfaction except satisfaction with pay.
    Keywords: job satisfaction, linked employer-employee data, Britain
    JEL: J28 I31
    Date: 2009–03
  5. By: Thomas J. Holmes; Julia Thornton Snider
    Abstract: We develop a theory of outsourcing in which there is market power in one factor market (labor) and no market power in a second factor market (capital). There are two intermediate goods: one labor-intensive and the other capital-intensive. We show there is always outsourcing in the market allocation when a friction limiting outsourcing is not too big. The key factor underlying the result is that labor demand is more elastic, the greater the labor share. Integrated plants pay higher wages than the specialist producers of labor-intensive intermediates. We derive conditions under which there are multiple equilibria that vary in the degree of outsourcing. Across these equilibria, wages are lower the greater the degree of outsourcing. Wages fall when outsourcing increases in response to a decline in the outsourcing friction.
    JEL: J31 L22 L23
    Date: 2009–04
  6. By: Beatriz García Osma (Lancaster University); Encarna Guillamón Saorín (Universidad Carlos III de Madrid)
    Abstract: We study the association between corporate governance and impression management in annual results press releases (ARPRs). Press releases constitute a timely vehicle to communicate firm performance to third parties. However, oftentimes, managers provide self-serving disclosures that attempt to distort readers¿ perceptions of corporate achievements. Corporate governance mechanisms actively monitor managerial disclosures, improving firm transparency. Thus, we predict that strong governance (i) increases firm voluntary release of ARPRs, and (ii) reduces impression management in those ARPRs. Tests are based on a sample of Spanish firms. The results confirm that strong governance firms are more likely to release an ARPR. In particular, board independence and the existence of remuneration and audit committees significantly determine this type of voluntary disclosure. We also show that strong governance limits impression management practices, consistent with governance monitoring effectively reducing self-serving disclosures by management. Our evidence is consistent with impression management being associated to firm news, suggesting that these practices respond, at least partly, to informative motivations. En este trabajo investigamos la asociación entre el gobierno corporativo y la manipulación de la presentación de la información en las notas de prensa. Las notas de prensa son uno de los medios que usan las empresas para comunicarse con terceras partes. A veces, las empresas revelan información con la intención de mostrar una imagen sesgada de la empresa. El gobierno corporativo es uno de los mecanismos que controlan la manipulación en la revelación de información y mejora la transparencia. Nuestras expectativas son que empresas con mejor gobierno corporativo (i) incrementen la revelación voluntaria y (2) muestren menos manipulación de la presentación de información en sus notas de prensa. Hemos analizado empresas Españolas cotizando en la Bolsa de Madrid. En particular, hemos encontrado que la independencia de los directivos y la existencia de comités de remuneración y de auditoria determinan el tipo de revelación de información voluntaria. Estos resultados confirman el papel de control que ejerce el gobierno corporativo para reducir efectivamente la presentación engañosa de la información. Nuestros resultados también muestran que la manipulación esta relacionada con las noticias de las empresas, lo que sugiere que estas practicas responden, al menos en parte, a razones informativas.
    Keywords: Gobierno corporativo, manipulación de la presentación, revelación voluntaria Corporate governance, impression management, voluntary disclosure
    JEL: G10 G38 M41
    Date: 2009–03
  7. By: Even, William E. (Miami University); Macpherson, David A. (Florida State University)
    Abstract: This study shows that the wage premium paid by large firms fell over the past 20 years and that the decline in the size premium has been most pronounced among the least educated work force. Empirical evidence supports several explanations for the decline in the size premium. First, there has been a convergence in the returns to worker characteristics at large and small firms over time. Second, there has been a convergence in the types of workers employed at small and large firms. Particularly important have been changes in the distribution of workers across industries and the greater rate of decline in unionism at large firms.
    Keywords: firm size, wages, fringe benefits
    JEL: J31 J32 J33
    Date: 2009–03
  8. By: Christopher Ferrall (Queen's University); Kjell G. Salvanes (Norwegian School of Economics); Erik Ø. Sørensen (Norwegian School of Economics)
    Abstract: We develop an equilibrium model of wages and estimate it using administrative data from Norway. Coworkers interact through a task-assignment model, and wages are determined through multi-lateral bargaining over the surplus that accrues to the workforce. Seniority affects wages through workplace output and relative bargaining power. These channels are separately identified by imposing equilibrium restrictions on data observing all workers within workplaces. We find joint production is important. Seniority affects bargaining power but is unproductive. We reinterpret gender and firm-size effects in wages in light of the rejection of linearly separable production.
    Keywords: Wage Distributions, Productivity, Matched Data, Multilateral Bargaining, Assignment Models
    JEL: D2 J3 J24 L25 J7
    Date: 2009–04
  9. By: Alexander Eickelpasch; Alexander Vogel
    Abstract: The determinants of export behaviour at firm level have been widely investigated for manufacturing companies. By contrast, what has remained largely neglected is a detailed investigation in the service sector. As aggregate statistics show, international trade in services has grown significantly over the last few years. However, it is unclear why some companies export and others do not. This paper presents some initial results about the German business services sector at firm level. Using a unique panel dataset of enterprises from the business services sector (transport, storage and communication, real estate, renting and business activities) for the years 2003 to 2005, we analysed the impact of several firm-specific characteristics such as size, productivity, human capital, experience on the national market in Germany, etc. on the firms' export performance. Further, we used the pooled fractional probit estimator, recently introduced by Papke & Wooldridge, an approach that considers both the special nature of the export intensity variable and in addition unobserved time-invariant characteristics. When there is no control for fixed enterprise effects the overall results are in line with previous studies. When there is a control for unobserved heterogeneity, the positive effects of productivity and human capital disappear, indicating that these variables are not per se positively related to export performance, but rather to time-constant characteristics that are unobserved. Size and product diversification still have a positive and significant effect.
    Keywords: Business services sector, export behaviour, firm performance
    JEL: F14 F23 L80
    Date: 2009
  10. By: Philippe Aghion; Mathias Dewatripont; Caroline M. Hoxby; Andreu Mas-Colell; André Sapir
    Abstract: We investigate how university governance affects research output, measured by patenting and international university research rankings. For both European and U.S. universities, we generate several measures of autonomy, governance, and competition for research funding. We show that university autonomy and competition are positively correlated with university output, both among European countries and among U.S. public universities. We then identity a (political) source of exogenous shocks to funding of U.S. universities. We demonstrate that, when a state's universities receive a positive funding shock, they produce more patents if they are more autonomous and face more competition from private research universities. Finally, we show that during periods when merit-based competitions for federal research funding have been most prominent, universities produce more patents when they receive an exogenous funding shock, suggesting that routine participation in such competitions hones research skill.
    JEL: H0 H52 I2 I23 I28 O3
    Date: 2009–04
  11. By: Kamil Yilmaz (Koc University)
    Abstract: We apply Diebold-Yilmaz spillover index methodology to monthly industrial production indices to study business cycle interdependence among G-6 industrialized countries since 1958. The business cycle spillover index fluctuates substantially over time, increasing especially after the 1973-75, 1981-82 and 2001 U.S. recessions. The band within which the spillover index fluctuates has widened since the start of the globalization process in the early 1990s. Our most important result, however, concerns the current state of the world economy: In a matter of four months from September to December 2008, the business cycle spillover index recorded the sharpest increase ever, reaching a record level as of December 2008 (See for updates of the spillover plot). Focusing on directional spillover measures, we show that in the current episode the shocks are mostly originating from the United States and spreading to other industrialized countries. We also show that, throughout the period of analysis, the U.S. (1980s and 2000s) and Japan (1970s and 2000s) have been the major transmitters of shocks among the industrialized countries.
    Keywords: Business Cycles, Spillovers, Industrial Production, Vector Autoregression, Variance Decomposition, Unit Roots, Cointegration
    JEL: E32 F41 C32
    Date: 2009–03
  12. By: Nick Vikander (Erasmus University Rotterdam)
    Abstract: This paper studies how morale in teams can break down. It interprets high morale as team members working together productively, either because of a sense of fairness or because of implicit incentives from repeated interactions. Team members learn that lay-offs will occur at a fixed future date, which will eventually cause morale to break down. The paper shows that the breakdown of morale can vary in size and the equilibrium outcomes can be Pareto ranked. A firm's measures to encourage cooperation may actually hurt morale, by convincing opportunistic team members to imitate and later take advantage of cooperative colleagues.
    Keywords: morale; teams; cooperation
    JEL: M50 M54 L22
    Date: 2009–03–12
  13. By: Inklaar, R.; Timmer, M.P. (Groningen University)
    Abstract: Cross-country studies of economic growth have been hampered by the scarcity of reliable data on productivity at the sector level, see Bernard and Jones (AER, 2001) and Rogerson (JPE, 2008). We bring together literature on industry prices, human capital and capital assets to construct industry-level productivity measures that are well-grounded in neo-classical production theory. These theory-based measures differ widely from the crude measures commonly used in the literature. We use these to confirm and strengthen the finding of Bernard and Jones (AER, 1996) that for advanced OECD countries, patterns of convergence across sectors have differed since 1970: while productivity in market services converged, there is no convergence in manufacturing. More detailed analysis confirms that patterns of convergence are highly industry-specific. There is no dominant convergence trend in sectoral productivity growth across advanced countries.
    Date: 2009
  14. By: Congregado, Emilio (University of Huelva); Golpe, Antonio A. (University of Huelva); Parker, Simon C. (University of Western Ontario)
    Abstract: This paper estimates an unobserved components model to explore the macro dynamics of entrepreneurship in Spain and the US. We ask whether entrepreneurship exhibits hysteresis, defined as a macro dynamic structure in which cyclical fluctuations have persistent effects on the natural rate of entrepreneurship. We find evidence of hysteresis in Spain, but not the US, while in both countries business cycle output variations significantly affect future rates of entrepreneurship. The article discusses implications of the findings for the design of entrepreneurship policies.
    Keywords: hysteresis, unobserved components model, time series models, business cycles, self-employment, entrepreneurship
    JEL: C32 E32 J24
    Date: 2009–03
  15. By: Oliver Budzinski (Department of Environmental and Business Economics, University of Southern Denmark); Jürgen-Peter Kretschmer (Economic Policy Unit, Philipps-University of Marburg, Germany)
    Abstract: We demonstrate that the popular Farrell-Shapiro-framework (FSF) for the analysis of mergers in oligopolies relies regarding its policy conclusions sensitively on the assumption that rational agents will only propose privately profitable mergers. If this assumption held, a positive external effect of a proposed merger would represent a sufficient condition to allow the merger. However, the empirical picture on mergers and acquisitions reveals a significant share of unprofitable mergers and economic theory, moreover, demonstrates that privately unprofitable mergers can be the result of rational action. Therefore, we extend the FSF by explicitly allowing for unprofitable mergers to occur with some frequency. This exerts a considerable impact on merger policy conclusions: while several insights of the original FSF are corroborated (f.i. efficiency defence), a positive external effect does not represent a sufficient condition for the allowance of a merger anymore. Applying such a rule would cause a considerable amount of false positives. We thank all participants of the 29th HOS Conference (Marburg, November 2007), the 35th EARIE Conference (Toulouse, September 2008) and the Annual Meeting of the Verein für Socialpolitik (Graz, September 2008) for a valuable and helpful discussion of this paper. Furthermore, we thank Barbara Güldenring for editorial assistance.
    Keywords: Oligopoly theory, horizontal merger policy, profitability of mergers, antitrust
    JEL: L13 L41 K21 D43
    Date: 2009–02
  16. By: Patrick Bolton; Tano Santos; Jose A. Scheinkman
    Abstract: We consider a model of liquidity demand arising from a possible maturity mismatch between asset revenues and consumption. This liquidity demand can be met with either cash reserves (inside liquidity) or via asset sales for cash (outside liquidity). The question we address is, what determines the mix of inside and outside liquidity in equilibrium? An important source of inefficiency in our model is the presence of asymmetric information about asset values, which increases the longer a liquidity trade is delayed. We establish existence of an immediate-trading equilibrium, in which asset trading occurs in anticipation of a liquidity shock, and sometimes also of a delayed-trading equilibrium, in which assets are traded in response to a liquidity shock. We show that, when it exists, the delayed-trading equilibrium is Pareto superior to the immediate-trading equilibrium, despite the presence of adverse selection. However, the presence of adverse selection may inefficiently accelerate asset liquidation. We also show that the delayed-trading equilibrium features more outside liquidity than the immediate-trading equilibrium although it is supplied in the presence of adverse selection. Finally, long term contracts do not always dominate the market provision of liquidity.
    JEL: G2 G21
    Date: 2009–04
  17. By: Laura Blow (Institute for Fiscal Studies, London); Martin Browning (Department of Economics, University of Oxford); Mette Ejrnæs (Department of Economics, University of Copenhagen)
    Abstract: We examine theoretically and empirically consumption over the early part of the life-cycle. The main focus is on the transition from being single to living with someone else. Our theoretical model allows for publicness in consumption; uncertainty concerning marriage; differences between lifetime incomes for prospective partners and a marriage premium. We develop a two period model to bring out the main features of the impact of marriage on consumption and saving. We then develop a multi-period model that can be taken to the data on expenditures by singles and couples aged between 18 and 30. Our empirical work is based on individual based quasi-panels from UK expenditure survey data from 1978 to 2005. The model fits the data relatively well. We find that expenditure by couples leads to 20-40 % more consumption than the same expenditure split between two comparable singles.
    Keywords: marriage; consumption; saving; family economics; economies of scale
    JEL: D12 D91 J12
    Date: 2009–03
  18. By: Soushi Suzuki (Hokkai-Gakuen University, Sapporo, Japan); Peter Nijkamp (VU University Amsterdam); Eric Pels (VU University Amsterdam); Piet Rietveld (VU University Amsterdam)
    Abstract: Data Envelopment Analysis (DEA) has become an established approach for analyzing and comparing efficiency results of corporate organizations or economic agents. It has also found wide application in comparative studies on airport efficiency. The standard DEA approach to comparative airport efficiency analysis has two feeble elements, viz. a methodological and a substantive weakness. The methodological weakness originates from the choice of uniform efficiency improvement assessment, while the substantive weakness in airport efficiency analysis concerns the insufficient attention for short-term and long-term adjustment possibilities in the production inputs determining airport efficiency. The present paper aims to address both flaws by: (i) designing a data-instigated Distance Friction Minimization (DFM) model as a generalization of the standard Banker-Charnes-Cooper (BCC) model with a view to the development of a more appropriate efficiency improvement projection model in the BCC version of DEA; (ii) including as factor inputs also lumpy or rigid factors that are characterized by short-term indivisibility or inertia (and hence not suitable for short-run flexible adjustment in new efficiency stages), as is the case for runways of airports. This so-called fixed factor (FF) case will be included in the DFM submodel of DEA. This extended DEA – with a DFM and an FF component – will be applied to a comparative performance analysis of several major airports in Europe. Finally, our comparative study on airport efficiency analysis will be extended by incorporating also the added value of the presence of shopping facilities at airports for their relative economic performance.
    Keywords: Transportation; Demand Supply; and Congestion; Safety and Accidents; Transportation Noise
    JEL: R41
    Date: 2009–03–18
  19. By: Simon Gilchrist; Vladimir Yankov; Egon Zakrajsek
    Abstract: To identify disruptions in credit markets, research on the role of asset prices in economic fluctuations has focused on the information content of various corporate credit spreads. We re-examine this evidence using a broad array of credit spreads constructed directly from the secondary bond prices on outstanding senior unsecured debt issued by a large panel of nonfinancial firms. An advantage of our "ground-up'' approach is that we are able to construct matched portfolios of equity returns, which allows us to examine the information content of bond spreads that is orthogonal to the information contained in stock prices of the same set of firms, as well as in macroeconomic variables measuring economic activity, inflation, interest rates, and other financial indicators. Our portfolio-based bond spreads contain substantial predictive power for economic activity and outperform---especially at longer horizons---standard default-risk indicators. Much of the predictive power of bond spreads for economic activity is embedded in securities issued by intermediate-risk rather than high-risk firms. According to impulse responses from a structural factor-augmented vector autoregression, unexpected increases in bond spreads cause large and persistent contractions in economic activity. Indeed, shocks emanating from the corporate bond market account for more than 30~percent of the forecast error variance in economic activity at the two- to four-year horizon. Overall, our results imply that credit market shocks have contributed significantly to U.S.\ economic fluctuations during the 1990--2008 period.
    JEL: E32 E44 G12
    Date: 2009–04
  20. By: Jesus Fernandez-Villaverde (Department of Economics, University of Pennsylvania); Pablo Guerron-Quintana (Department of Economics, North Carolina State University); Juan F. Rubio-Ramírez (Department of Economics, Duke University); Martin Uribe (Department of Economics, Columbia University)
    Abstract: This paper shows how changes in the volatility of the real interest rate at which small open emerging economies borrow have a quantitatively important effect on real variables like output, consumption, investment, and hours worked. To motivate our investigation, we document the strong evidence of time-varying volatility in the real interest rates faced by a sample of four emerging small open economies: Argentina, Ecuador, Venezuela, and Brazil. We postulate a stochastic volatility process for real interest rates using T-bill rates and country spreads and estimate it with the help of the Particle filter and Bayesian methods. Then, we feed the estimated stochastic volatility process for real interest rates in an otherwise standard small open economy business cycle model. We calibrate eight versions of our model to match basic aggregate observations, two versions for each of the four countries in our sample. We find that an increase in real interest rate volatility triggers a fall in output, consumption, investment, and hours worked, and a notable change in the current account of the economy.
    Keywords: Small Open Economy, DSGE Models, Stochastic Volatility
    JEL: C32 C63 F32 F41
    Date: 2009–04–03

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