nep-bec New Economics Papers
on Business Economics
Issue of 2009‒05‒16
28 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Performance Pay and Within-Firm Wage Inequality By Barth, Erling; Bratsberg, Bernt; Haegeland, Torbjørn; Raaum, Oddbjørn
  2. Extensive and Intensive Investment over the Business Cycle By Boyan Jovanovic; Peter L. Rousseau
  3. The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger By Joseph A. Clougherty; Tomaso Duso
  4. Organizational Change, Skill Formation, Human Capital Measurement: Evidence From Italian Manufacturing Firms By G. Antonelli; R. Antonietti; G. Guidetti
  5. Wages and Seniority When Coworkers Matter: Estimating a Joint Production Economy Using Norwegian Administrative Data By Ferrall, Christopher; Salvanes, Kjell G.; Sorensen, Erik
  6. Looking Inside a Conglomerate: Efficiency of Internal Capital Allocation and Managerial Power Within a Firm By Glaser, Markus; Lopez de Silanes , Florencio; Sautner, Zacharias
  7. Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961-1999 By David S. Lee; Alexandre Mas
  8. Market Concentration and Business Survival in Static v Dynamic Industries By Andrew Burke; Aoife Hanley
  9. The Effect of Employment Protection Legislation and Financial Market Imperfections on Investment: Evidence from a Firm-Level Panel of EU countries By Federico Cingano; Marco Leonardi; Julian Messina; Giovanni Pica
  10. Union Wage Effects in Australia: Evidence from Panel Data By Lixin Cai; C. Jeffrey Waddoups
  11. The Limitations of Stock Market Efficiency: Price Informativeness and CEO Turnover By Gary B. Gorton; Lixin Huang; Qiang Kang
  12. Financial Frictions on Capital Allocation: A Transmission Mechanism of TFP Fluctuations By Chen, Kaiji; Song, Zheng
  13. Differences in Decline: Quantile Regression Analysis of Union Wage Differentials in the United Kingdom, 1991-2003 By Manquilef-Bächler, Alejandra A.; Arulampalam, Wiji; Smith, Jennifer C.
  14. Are the High-growth Recovery Periods Over? By Hugo Rodríguez Mendizábal; Máximo Camacho; Gabriel Pérez Quirós
  15. Unstable Banking By Andrei Shleifer; Robert W. Vishny
  16. Letting Different Views about Business Cycles Compete By Paul Beaudry; Bernd Lucke
  17. Overborrowing and Systemic Externalities in the Business Cycle By Bianchi, Javier
  18. Return to Training and Establishment Size: A Reexamination of the Size-Wage Puzzle By Feng, Shuaizhang
  19. Measurement of labor quality growth caused by unobservable characteristics By Bolli, Thomas; Zurlinden, Mathias
  20. Patterns of International Capital Raisings By Juan Carlos Gozzi; Ross Levine; Sergio L. Schmukler
  21. The Role of Unobserved Heterogeneity and On-the-Job Training in the Employer Size-Wage Effect: Evidence from Australia By Lixin Cai; C. Jeffrey Waddoups
  22. Job changes and individual-job specific wage dynamics By Laura Hospido
  23. Competitive Screening in Insurance Markets with Endogenous Wealth Heterogeneity By Nick Netzer; Florian Scheuer
  24. Does employment affect productivity? By Albert van der Horst; Hugo Rojas-Romagosa; Leon Bettendorf
  25. Search and Offshoring in the Presence of "Animal Spirits" By Mitra, Devashish; Ranjan, Priya
  26. Channels of risk-sharing among Canadian provinces: 1961–2006 By Balli, Faruk; Basher, Syed; Louis, Rosmy
  27. Forecasting bank loans loss-given-default By Joao A. Bastos
  28. Why do macro wage elasticities diverge? By Kees Folmer

  1. By: Barth, Erling (Institute for Social Research, Oslo); Bratsberg, Bernt (Ragnar Frisch Centre for Economic Research); Haegeland, Torbjørn (Statistics Norway); Raaum, Oddbjørn (Ragnar Frisch Centre for Economic Research)
    Abstract: This paper examines the impact of performance-related pay on wage differentials within firms. Our theoretical framework predicts that, compared to a fixed pay system, pay schemes based on individual output increase within-firm wage inequality, while group-based bonuses have minor effects on wage dispersion. Theory also predicts an interaction between performance-related pay and union bargaining, where union power reduces the impact of performance pay on wage dispersion. The empirical contribution utilizes two recent Norwegian employer surveys, linked to a full set of individual employee pay records. A longitudinal sub-sample allows for identification based on fixed establishment effects. Introduction of performance-related pay is shown to raise residual wage inequality in nonunion firms, but not in firms with high union density. Our findings suggest that even though performance-related pay appears to be on the rise, the overall impact on wage dispersion is likely to be small, particularly in European countries with strong unions.
    Keywords: performance related pay, wage inequality, union bargaining
    JEL: J31 J33
    Date: 2009–04
  2. By: Boyan Jovanovic; Peter L. Rousseau
    Abstract: Investment of U.S. firms responds asymmetrically to Tobin’s Q: Investment of established firms — ‘intensive’ investment — reacts negatively to Q whereas investment of new firms — ‘extensive’ investment — responds positively and elastically to Q. This asymmetry, we argue, reflects a difference between established and new firms in the cost of adopting new technologies. A fall in the compatibility of new capital with old capital raises measured Q and reduces the incentive of established firms to invest. New firms do not face such compatibility costs and step up their investment in response to the rise in Q. A composite-capital version of the model fits the data well using aggregates since 1900 and our new database of firm-level Qs that extend back to 1920.
    JEL: E22 E32
    Date: 2009–05
  3. By: Joseph A. Clougherty; Tomaso Duso
    Abstract: It is commonly perceived that firms do not want to be outsiders to a merger between competitor firms. We instead argue that it is beneficial to be a non-merging rival firm to a large horizontal merger. Using a sample of mergers with expert-identification of relevant rivals and the event-study methodology, we find rivals generally experience positive abnormal returns at the merger announcement date. Further, we find that the stock reaction of rivals to merger events is not sensitive to merger waves; hence, ‘future acquisition probability’ does not drive the positive abnormal returns of rivals. We then build a conceptual framework that encompasses the impact of merger events on both merging and rival firms in order to provide a schematic to elicit more information on merger type. <br> <br> <i>ZUSAMMENFASSUNG - (Die Wirkung von horizontalen Zusammenschlüssen auf Wettbewerber: Der Nutzen einer Außenseiterposition bei Fusionen) <br>Es ist gemeinhin bekannt, dass Unternehmen nicht Außenseiter einer Fusion zwischen eigenen Wettbewerbern sein wollen. In dieser Arbeit zeigen wir, dass es für Unternehmen durchaus vorteilhaft sein kann, sich an einem großen horizontalen Zusammenschluss nicht zu beteiligen. Anhand einer Datenbank von großen Fusionen, in denen die relevanten Wettbewerber der fusionierenden Unternehmen von Experten der Europäischen Kommission identifiziert worden sind, und Mithilfe einer Ereignisstudienmethode, bestätigen wir empirisch, dass Wettbewerber durchschnittlich positive abnormale Gewinne bei der Ankündigung eines Zusammenschlusses erzielen. Darüber hinaus stellen wir fest, dass die Reaktion der Aktienkurse von Konkurrenten bei der Ankündigung eines Zusammenschlusses nicht anfällig für Fusionswellen ist, und dass die abnormalen Gewinne nicht von der "künftigen Firmenübernahmewahrscheinlichkeit" getrieben sind. Schließlich wird in der Studie ein konzeptioneller Rahmen entwickelt, der die Auswirkungen der Fusion sowohl auf die fusionierenden Unternehmen und als auch auf die Wettbewerber zusammenfasst, um die Art des Zusammenschlusses besser identifizieren zu können.<i>
    Keywords: Rivals, Mergers, Acquisitions, Event-Study
    JEL: G34 G14 M20 L22
    Date: 2008–05
  4. By: G. Antonelli; R. Antonietti; G. Guidetti
    Date: 2009–03
  5. By: Ferrall, Christopher (Queen's University); Salvanes, Kjell G. (Norwegian School of Economics and Business Administration); Sorensen, Erik (Norwegian School of Economics and Business Administration)
    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 multi­lateral 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
  6. By: Glaser, Markus (Sonderforschungsbereich 504); Lopez de Silanes , Florencio (EDHEC Business School); Sautner, Zacharias (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)
    Abstract: Does more bargaining power of managers inside a firm lead to larger allocations of capital? To tackle this question, we use unique and proprietary panel data on planned and realized capital allocations inside a very large conglomerate. The firm operates worldwide, is headquartered in Europe and has 5 divisions and 22 business units. We measure bargaining power by looking at the three complementary measures of power: (i) tenure of the division CEOs, (ii) whether they have the local nationality and (iii) whether they have an engineering degree (the firm has a very strong and very long engineering tradition). We find that (ex ante) planned allocations of capital are not distorted by bargaining power. Then we study how unexpected cash windfalls at the headquarter level are distributed inside the firm. The cash windfalls result from the sale of equity holdings in other firms and are exogenous to the divisions and business units. We find that managers with more bargaining power get a larger part of the cash windfalls for their own business units. Our results suggest that bargaining power does not matter in formalized allocation processes but rather when it comes to the ad hoc distribution of unexpected cash windfalls. We show that our power variables do not proxy for ability.
    Date: 2008–12–03
  7. By: David S. Lee (Princeton University and NBER); Alexandre Mas (University of California, Berkeley and NBER)
    Abstract: We estimate the effect of new unionization on firms’ equity value over the 1961-1999 period using a newly assembled sample of National Labor Relations Board (NLRB) representation elections matched to stock market data. Event-study estimates show an average union effect on the equity value of the firm equivalent to a cost of at least $40,500 per unionized worker. At the same time, point estimates from a regression-discontinuity design—comparing the stock market impact of close union election wins to close losses—are considerably smaller and close to zero. We find a negative relationship between the cumulative abnormal returns and the vote share in support of the union, allowing us to reconcile these seemingly contradictory findings. Using the magnitudes from the analysis, we calibrate a structural “median voter” model of endogenous union determination in order to conduct counterfactual policy simulations of policies that would marginally increase the ease of unionization.
    Date: 2009–01
  8. By: Andrew Burke; Aoife Hanley
    Abstract: We propose that the effect of market concentration on firm survival is different according to whether an industry is static (low entry and exit) or dynamic. In our empirical analysis we find support for this hypothesis. Industry concentration rates reduce the survival of new plants but only in markets marked by low entry and exit rates. Specifically, a 10 percent increase in the 5-firm concentration ratio in a dynamic market raises the survival rate of new ventures by approximately 2 percent. Our results have implications for the antitrust/competition law indicating less need for regulation of dominant firms in dynamic industries characterized by high entry and exit rates. We use a unique dataset comprising the population of new ventures that enter the UK market in 1998
    Keywords: new firms, start-ups, survival, dynamism, competition policy, industry concentration
    JEL: L11 L25 M13 M40
    Date: 2009–05
  9. By: Federico Cingano (Bank of Italy); Marco Leonardi (University of Milan and IZA); Julian Messina (University of Girona, FEDEA and IZA); Giovanni Pica (Università di Salerno and CSEF)
    Abstract: This paper analyzes the joint effect of EPL and financial market imperfections on investment, capital-labour substitution, labour productivity and job reallocation in a cross-country framework. In the spirit of Rajan and Zingales (1998) and Ciccone and Papaioannou (2006), we exploit variation in the need for reallocation at the sectoral and aggregate level to assess the average effect of EPL on firms’ policies. Then, exploiting firm-level information we study if the effect of EPL is stronger in firms with lower levels of internal resources. We find that, on average, EPL reduces investment per worker, capital per worker and value added per worker in high reallocation sectors relative to low reallocation sectors. The reduction in the capital-labour ratio is less pronounced in firms with higher internal resources, suggesting that financial constraints exacerbate the negative effects of EPL on capital deepening.
    Date: 2009–05–01
  10. By: Lixin Cai (The Institute of Applied Economic and Social Research, University of Melbourne); C. Jeffrey Waddoups (Department of Economics, University of Nevada, Las Vegas)
    Abstract: Using data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, our research indicates that unobserved heterogeneity substantially biases cross-sectional estimates of union wage effects upward for both males and females. Estimates of the union wage premium for male workers between the ages of 25 and 64 fall from 8.7% to 5.2% after controlling for unobserved heterogeneity. For females age 25 to 63 the estimated 4.0% cross-sectional union wage premium falls to 1.9% once unobserved heterogeneity is controlled for. Our results also indicate positive sorting by unobserved skills into union membership, especially among low skilled male and female workers. There is also evidence of negative sorting into unions among the most highly skilled.
    Keywords: union wage effects; fixed effects models; panel data JEL codes: JEL: J31, J51
    JEL: J31 J51
    Date: 2009–01
  11. By: Gary B. Gorton; Lixin Huang; Qiang Kang
    Abstract: Stock prices are more informative when the information has less social value. Speculators with limited resources making costly (private) information production decisions must decide to produce information about some firms and not others. We show that producing and trading on private information is most profitable in the stocks of firms with poor corporate governance -- precisely because it will not be acted upon -- and less profitable at firms with better corporate governance. To the extent that the information in the stock price is used for disciplining the CEO by the board of directors, the informed trader has a reduced incentive to produce the information in the first place. We test our model using the probability of informed trading (PIN) and the probability of forced CEO turnover in a simultaneous-equation system. The empirical results support the model predictions. Stock prices are efficient, but there is a limit to the disciplining role they can fulfill. We apply the model to evaluate the effects of the Sarbanes-Oxley Act of 2002.
    JEL: G0 G1 G14 G3
    Date: 2009–05
  12. By: Chen, Kaiji; Song, Zheng
    Abstract: This paper provides a theory of financial frictions as a transmission mechanism for primitive shocks to translate into aggregate TFP fluctuations. In our model, financial frictions distort existing capital allocation across different production units, rather than investment in new capital. News shocks on future technology improvement are introduced as a device to identify TFP fluctuations originating from this mechanism. Our simulation shows that variations in financial frictions in response to news shocks can generate sizable fluctuations in aggregate TFP and, thus, business cycles before the actual technology change is realized. Using a combined dataset from Compustat and IBES, we find that the empirical responses of capital acquisition to prospects about future profitability are significantly larger for firms more likely to be financially constrained, while such a pattern does not exist for new capital investment. Furthermore, capital acquisition of constrained firms is found to be more procyclical than that for unconstrained ones. Our evidence thus provides strong support for the importance of financial frictions on capital allocation as the transmission mechanism proposed by our theory.
    Keywords: Financial Friction; Capital Reallocation; TFP Fluctuation; News Shock
    JEL: E32 G34
    Date: 2009–04–14
  13. By: Manquilef-Bächler, Alejandra A. (University of Warwick); Arulampalam, Wiji (University of Warwick); Smith, Jennifer C. (University of Warwick)
    Abstract: Wage premia related to union membership and coverage are examined over 1991-2003, a period involving first decline, then stabilization, of unionization. Differences in union premia across workers and over time are studied using individual-level British Household Panel Survey data and quantile regression techniques allowing for endogeneity of the membership decision. Raw differentials suggest the presence of large positive membership and coverage premia that are stronger at the bottom of the wage distribution in both private and public sectors. After controlling for other factors influencing wages, union asymmetries are no longer apparent in the private sector. When endogeneity of union membership is taken into account, the private sector union wage premium disappears, indicating that individuals positively select into unions. In contrast, the public sector total union wage premium remains significant – entirely due to a coverage effect; it is stronger at the bottom among males, while for females the premium is constant across workers and substantial over the whole period, reflecting the continuing strength of public sector unions. Once we control for endogeneity, the membership premium is nowhere significant; there is no free rider puzzle in the private sector, as there is no coverage premium, but the puzzle persists for the public sector.
    Keywords: union membership premium, quantile regression, endogenous union membership
    JEL: C2 J31 J51
    Date: 2009–04
  14. By: Hugo Rodríguez Mendizábal; Máximo Camacho; Gabriel Pérez Quirós
    Abstract: We present evidence about the loss of the so-called ?plucking effect?, that is, a high-growth phase of the cycle typically observed at the end of recessions. This result matches the popular belief, presented informally by different authors, that the current recession will have permanent effects, or that the current recession will have an L shape versus the old-time recessions that have always had a V shape. Furthermore, we show that the loss of the ?plucking effect? can explain part of the Great Moderation. We postulate that these two phenomena may be due to changes in inventory management brought about by improvements in information and communications technologies.
    Keywords: Business cycle characteristics, Great Moderation, High-growth recovery
    JEL: E32 F02 C22
    Date: 2009–04–20
  15. By: Andrei Shleifer; Robert W. Vishny
    Abstract: We propose a theory of financial intermediaries operating in markets influenced by investor sentiment. In our model, banks make loans, securitize these loans, trade in them, or hold cash. They can also borrow money, using their security holdings as collateral. We embed such banks in a stylized financial market, in which securitized loans may be mispriced, and investigate how banks allocate limited capital among the various activities, as well as how they choose their capital structure. Banks maximize profits, and there are no conflicts of interest between bank shareholders and creditors. The theory explains the cyclical behavior of credit and investment, but also accounts for the fundamental instability of banks operating in financial markets, especially when banks use leverage.
    JEL: E32 G21 G33
    Date: 2009–05
  16. By: Paul Beaudry; Bernd Lucke
    Abstract: There are several candidate explanations for macro-fluctuations. Two of the most common discussed sources are surprise changes in disembodied technology and monetary innovations. Another popular explanation is found under the heading of a preference or more generally a demand shock. More recently two other explanations have been advocated: surprise changes in investment specific technology and news about future technology growth. The aim of this paper is to provide a quantitative assessment of the relative merits of all these explanations by adopting a framework which allows them to compete. In particular, we propose a co-integrated SVAR approach that encompasses all 5 shocks and thereby offers a coherent evaluation of the dynamics they induce as well as their contribution to macro volatility. Our main finding is that surprise changes in technology, whether it be of the disembodied or embodied nature, account for very little of fluctuations. In contrast, expected changes in technology appear to be an important force, with preference/demand shocks and monetary shocks also playing non-negligible roles.
    JEL: E32
    Date: 2009–05
  17. By: Bianchi, Javier
    Abstract: Credit constraints that link a private agent's debt to market-determined prices embody a systemic credit externality that drives a wedge between competitive and (constrained) socially optimal equilibria, which induces private agents to ``overborrow". We quantify the effects of this externality in a two-sector DSGE model of a small open economy calibrated to emerging markets. Debt is denominated in units of tradable goods, and is constrained not to exceed a fraction of income, including nontradables income valued at the relative price of nontradables. The externality arises because agents fail to internalize the price effects of their individual borrowing, and hence the adverse debt-deflation amplification effects of negative income shocks that trigger a binding credit constraint. Quantitatively, the credit externality causes a modest increase in average debt, of about 2 percentage points of GDP, but it triples the probability of financial crises and doubles the average current account and consumption reversals caused by these crises.
    Keywords: Financial Crises, Business Cycles, Amplification Effects, Sudden Stops, Systemic Externalities
    JEL: D62 F20 E32 F32 F30 F41
    Date: 2009–04–28
  18. By: Feng, Shuaizhang (Princeton University)
    Abstract: The paper reexamines the employer size-wage puzzle using NLSY79 data. The empirical results show that even for those who never receive any training from their employers, size-wage premium still exists and is quantitatively important. Wage increases associated with receiving on-the-job training are less in large establishments than in small ones. In addition, there is no evidence that starting wages in large establishments are lower than in small establishments. Theories that explain the size-wage puzzle using training and other endogenous productivity differences are not consistent with these new findings.
    Keywords: size-wage premium, return to training, establishment size
    JEL: J31 J24
    Date: 2009–04
  19. By: Bolli, Thomas (ETH Zurich); Zurlinden, Mathias (Swiss National Bank)
    Abstract: The standard economy-wide indices of labor quality (or human capital) largely ignore the role of unobservable worker characteristics. In this paper, we develop a methodology for identifying the contributions of both observable and unobservable worker characteristics in the presence of the incidental parameter problem. Based on data for Switzerland over the period 1991-2006, we find that a large part of growth in labor quality is caused by shifts in the distribution of unobservable worker characteristics. The overall index differs little from the standard indices, but contributions to growth attributed to education and age are corrected downwards.
    Keywords: human capital; labor quality
    JEL: J24 J31
    Date: 2009–01–15
  20. By: Juan Carlos Gozzi; Ross Levine; Sergio L. Schmukler
    Abstract: This paper documents several new patterns associated with firms issuing stocks and bonds in foreign markets that motivate the need for and help guide the direction of future research. Three major patterns stand out. (1) A large and growing fraction of capital raisings, especially debt issuances, occurs in international markets, but a very small number of firms accounts for the bulk of international capital raisings, highlighting the cross-firm heterogeneity in financial globalization. (2) Changes in firm performance following equity and debt issuances in international markets are qualitatively similar to those following domestic issuances, suggesting that capital raisings abroad are not intrinsically different from those in domestic markets. (3) Firms continue to issue securities both abroad and at home after accessing international markets, suggesting that international and domestic markets are complements, not substitutes. Existing theories do not fully account for these patterns.
    JEL: F20 F36 G15
    Date: 2009–05
  21. By: Lixin Cai (The Institute of Applied Economic and Social Research, University of Melbourne); C. Jeffrey Waddoups (Department of Economics, University of Nevada, Las Vegas)
    Abstract: The positive relationship between employer size and wages is a ubiquitous feature of advanced industrialized economies. The purpose of the present study is to clarify the nature of the employer size-wage effect in Australia by determining the extent to which it can be explained by observed and unobserved quality differences, including difference in on-the-job training. The empirical results are based on analysis of the Household Income and Labour Dynamics in Australia (HILDA) Survey, which is a relatively new nationally representative panel data set focused on family income, employment, and well-being. Our findings indicate that for males, quality adjusted employer size-wage effects are quite small and mostly driven by lower wages for workers in the smallest firms (fewer than twenty workers). For females, size-wage effects disappear when unobserved quality differences are accounted for. We also find that accounting for differences in the incidence of job training has no effect on the structure of wage differences by employer size.
    Keywords: size wage effects; fixed effects models; panel data JEL codes: JEL: J31, J51
    JEL: J31 J51
    Date: 2009–03
  22. By: Laura Hospido (Banco de España)
    Abstract: This paper develops an error components model that is used to examine the impact of job changes on the dynamics and variance of individual log earnings. I use data on work histories drawn from the Panel Study of Income Dynamics (PSID), that makes possible to do the distinction between voluntary an involuntary job-to-job changes. The potential endogeneity of job mobility in relation to earnings es circumvented by means of an instrument variable estimation method that also allows to control for unobserved individual-job specific heterogeneity.
    Keywords: Panel data, dynamic models, individual-job specific fixed effects, job changes, individual wages
    JEL: C23 J31
    Date: 2009–05
  23. By: Nick Netzer (Socioeconomic Institute, University of Zurich); Florian Scheuer (Massachusetts Institute of Technology)
    Abstract: We examine equilibria in competitive insurance markets with adverse selection when wealth differences arise endogenously from unobservable savings or labor supply decisions. The endogeneity of wealth implies that high risk individuals may ceteris paribus exhibit the lower marginal willingness to pay for insurance than low risks, a phenomenon that we refer to as irregular-crossing preferences. In our main model, both risk and patience (or productivity) are privately observable. In contrast to the models in the existing literature, where wealth heterogeneity is exogenously assumed, equilibria in our model no longer exhibit a monotone relation between risk and coverage. Individuals who purchase larger coverage are no longer higher risks, a phenomenon frequently observed in empirical studies.
    Keywords: Insurance Markets, Adverse Selection, Multidimensional Screening
    JEL: D82 G22 J22
    Date: 2009–04
  24. By: Albert van der Horst; Hugo Rojas-Romagosa; Leon Bettendorf
    Abstract: We investigate the trade-o¤ between employment and labour productivity in a panel of OECD countries in 1970-2003. The endogeneity of employment is shown to matter crucially for assessing its e¤ect on productivity. Estimating a structural model with 3SLS, where employment depends on demographic variables and labour market institutions, we .nd that employment tends to boost productivity. Literature ignoring the endogeneity of employment, including our own OLS results, incorrectly .nds a negative or insigni.cant e¤ect from employment on productivity. The productivity gain is, however, not a guaranteed by-product of additional employment, as regressions with rolling windows reveal.
    Keywords: labour productivity; employment
    JEL: E20 J24 O41
    Date: 2009–02
  25. By: Mitra, Devashish (Syracuse University); Ranjan, Priya (University of California, Irvine)
    Abstract: In this paper, we introduce two sources of unemployment in a two-factor general equilibrium model: search frictions and fairness considerations. We find that a binding fair-wage constraint increases the unskilled unemployment rate and can at the same time lead to a higher unemployment rate for skilled workers, as compared to an equilibrium where fairness considerations are absent or non-binding. Starting from a constrained equilibrium, an increase in the fairness parameter leads to increases in both skilled and unskilled unemployment. The wage of unskilled workers increases but the wage of skilled workers decreases. Next we allow for offshoring of unskilled jobs in our model, and we find that, as a result, it becomes more likely that the fair-wage constraint binds. Offshoring of unskilled jobs always leads to an increase in skilled wage, a decrease in skilled unemployment and an increase in unskilled unemployment. The presence of fairness considerations increases the adverse impact of offshoring on unskilled unemployment. The unskilled wage can increase or decrease as a result of offshoring.
    Keywords: fair wages, unemployment, strategic effect, offshoring
    JEL: E24 F16 F41
    Date: 2009–04
  26. By: Balli, Faruk; Basher, Syed; Louis, Rosmy
    Abstract: This paper incorporates recent developments in the literature to quantify the channels and the associated determinants of risk-sharing among Canadian provinces. We find that 40 percent of shocks to gross provincial product are smoothed by capital markets, 25 percent are smoothed by the federal government, and 16 percent are smoothed by credit markets. The remaining 19 percent are not smoothed. Our decomposition of federal government smoothing shows that transfers to provincial and local governments constitute a major part of smoothing. Our estimates reveal that the series of postwar Bank Act revisions facilitated the working of capital market smoothing over time. We also conduct an investigation understanding why the credit market smoothing has declined over time. Finally, we introduce a new dimension in the analysis of risk-sharing by conducting a pairwise risk-sharing approach. The pairwise results present numerous micro findings that can help decision makers in formulating policies to remedy the weak links of incomplete risk-sharing.
    Keywords: Risk-sharing; consumption smoothing; federal taxes and transfer; pairwise approach.
    JEL: H77 F36 E20
    Date: 2009
  27. By: Joao A. Bastos (CEMAPRE, School of Economics and Management (ISEG), Technical University of Lisbon)
    Abstract: With the advent of the new Basel Capital Accord, banking organizations are invited to estimate credit risk capital requirements using an internal ratings based approach. In order to be compliant with this approach, institutions must estimate the expected loss-given-default, the fraction of the credit exposure that is lost if the borrower defaults. This study evaluates the ability of a parametric fractional response regression and a nonparametric regression tree model to forecast bank loan credit losses. The out-of-sample predictive ability of these models is evaluated at several recovery horizons after the default event. The out-of-time predictive ability is also measured for a recovery horizon of one year. The performance of the models is benchmarked against recovery estimates given by a naive model in which predicted recoveries are given by historical averages.
    Keywords: Forecasting, bank loans, loss-given-default, fractional response regression, regression trees
    JEL: G21
    Date: 2009–05
  28. By: Kees Folmer
    Abstract: This study analyses macro elasticities of the gross yearly wage per employee. From some 90 books, articles and working papers, more than 1000 elasticities have been extracted. The results indicate that the dynamic specification of the wage equation, the choice of explanatory variables and restrictions on estimated coefficients all have their impact on estimated elasticities. From the results, we generate benchmark values for each type of elasticity that may be useful to calibrate policy simulation models.
    Keywords: elasticity of pay, meta analysis
    JEL: C42 J30
    Date: 2009–03

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