|
on Business Economics |
| By: | Catherine Fuss (National Bank of Belgium, Research Department, 14, bd. de Berlaimont, 1000 Brussels, Belgium.); Ladislav Wintr (Central Bank of Luxembourg, Economics and Research Department, 2 boulevard Royal, L – 2983 Luxembourg, Luxembourg.) |
| Abstract: | Using firm-level data for Belgium over the period 1997-2005, we evaluate the elasticity of firms' labour and real average labour compensation to microeconomic total factor productivity (TFP). Our results may be summarised as follows. First, we find that the elasticity of average labour compensation to firm-level TFP is very low contrary to that of labour, consistent with real wage rigidity. Second, while the elasticity of average labour compensation to idiosyncratic firm-level TFP is close to zero, the elasticity with respect to aggregate sector-level TFP is high. We argue that average labour compensation adjustment mainly occur at the sector level through sectoral collective bargaining, which leaves little room for firm-level adjustment to firm-specific shocks. Third, we report evidence of a positive relationship between hours and idiosyncratic TFP, as well as aggregate TFP within the year. JEL Classification: J30, J60. |
| Keywords: | labour compensation, employment, hours, Total Factor Productivity. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091021&r=bec |
| By: | Stephan Fahr (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Fang Yao (Institute for Economic Theory, Humboldt University of Berlin, Spandauer Strasse 1, D-10178 Berlin, Germany.) |
| Abstract: | We analyze the dynamic effects of lumpy factor adjustments at the firm level onto the aggregate economy. We find that distinguishing between capital and labour as lumpy factors within the production function result in very different dynamics for aggregate output, investment and labour in an otherwise standard real business cycle model. Lumpy capital leaves the RBC dynamics mainly unchanged, while lumpy labour allows for persistence and an inner propagation within the model in form of hump-shaped impulse responses. In addition, when modeling lumpy adjustments on both investment and labour, the aggregate effects are even stronger. We investigate the mechanisms underlying these results and identify the elasticity of factor supply as the most important element in accounting for these differences. JEL Classification: E32, E22, E24. |
| Keywords: | Lumpy labor adjustment, Lumpy investment, Business cycles, Elasticity of supply. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091016&r=bec |
| By: | Julián Messina (University of Girona, Plaça Sant Domènec, 3, E-17071 Girona, Spain.); Chiara Strozzi (Università degli Studi di Modena e Reggio Emilia,Via Università 4, I - 41100 Modena, Italy.); Jarkko Turunen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | We study differences in the adjustment of aggregate real wages in the manufacturing sector over the business cycle across OECD countries, combining results from different data and dynamic methods. Summary measures of cyclicality show genuine cross-country heterogeneity even after controlling for the impact of data and methods. We find that more open economies and countries with stronger unions tend to have less pro-cyclical (or more counter-cyclical) wages. We also find a positive correlation between the cyclicality of real wages and employment, suggesting that policy complementarities may influence the adjustment of both quantities and prices in the labour market. JEL Classification: E32, J30, C10. |
| Keywords: | real wages, business cycle, dynamic correlation, labour market institutions. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091003&r=bec |
| By: | Christian Alejandro Ruzzier (Harvard Business School) |
| Abstract: | This paper studies the consequences of product-market competition on firms' decisions to delegate more or fewer decision-making responsibilities to managers. By simultaneously addressing the choice of both competitive actions and organizational design, the paper makes an attempt at bringing economic theory and management strategy closer together. An increase in substitutability between the products of the different firms triggers a different response depending on the size of the firm: larger firms delegate more responsibility, whereas smaller firms centralize decision making. The increase in substitutability also causes some firms to exit the market, which pushes in the direction of reduced managerial autonomy. Stronger competition also leads to less discretion in markets in which the possibilities for product differentiation are important. For a given number of firms, an increase in market size increases centralization, as the owner of the firm finds it more costly to accept rent seeking by the managers. However, this increase in market size will lead to the entry of more firms, which calls for more decentralized decision making. Under reasonable conditions, the aggregate effect leads to a U-shaped relationship where firms in both small and large markets are characterized by high levels of discretion, while there is less discretion for intermediate market sizes. Finally, a reduction in entry barriers leads unambiguously to an increase in the level of discretion given to the agent, as it results in a larger number of firms entering the market and, for a given market size, in lower concentration or expected firm-level demand, which reduces the value of having control and pushes in the direction of increased autonomy. |
| Keywords: | product-market competition, delegation, authority, oligopoly, firm organization |
| JEL: | D43 L13 L22 M21 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:10-009&r=bec |
| By: | Carrillo-Tudela, Carlos (University of Leicester); Menzio, Guido (University of Pennsylvania); Smith, Eric (University of Essex) |
| Abstract: | This paper revisits the no-recall assumption in job search models with take-it-or-leave-it offers. Workers who can recall previously encountered potential employers in order to engage them in Bertrand bidding have a distinct advantage over workers without such attachments. Firms account for this difference when hiring a worker. When a worker first meets a firm, the firm offers the worker a sufficient share of the match rents to avoid a bidding war in the future. The pair share the gains to trade. In this case, the Diamond paradox no longer holds. |
| Keywords: | job search, recall, wage determination, Diamond paradox |
| JEL: | J24 J42 J64 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4319&r=bec |
| By: | Thomas Y. Mathä (Central Bank of Luxembourg, 2 bd. Royal, L-2983 Luxembourg.); Olivier Pierrard (Central Bank of Luxembourg, 2 bd. Royal, L-2983 Luxembourg.) |
| Abstract: | We develop a search-matching model, where firms search for customers (e.g. in form of advertising). Firms use long-term contracts and bargain over prices, resulting in a price mark up above marginal cost, which is procyclical and depends on firms’ relative bargaining power. Product market frictions decrease the steady state equilibrium, improve the cyclical properties of the model and provide a more realistic picture of firms’ business environment. This suggests that product market frictions may well be crucial in explaining business cycle fluctuations. Finally, we also show that welfare costs of price rigidities are negligible relative to welfare costs of frictions. JEL Classification: E10, E31, E32. |
| Keywords: | Business cycle, Frictions, Product market, Price bargain. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091036&r=bec |
| By: | William R. Kerr (Harvard Business School, Entrepreneurial Management Unit); Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit) |
| Abstract: | We examine the effect of US branch banking deregulations on the entry size of new firms using micro-data from the US Census Bureau. We find that the average entry size for startups did not change following the deregulations. However, this result masks the differences in entry size among startups that failed within three years of entry and those that survived for four years or more. Long-term entrants started at a 2% larger size relative to their size in their fourth year, while churning entrants were no larger. Our results suggest that the banking deregulations had two distinct effects on the product market. On the one hand, they allowed entrants to compete more effectively against incumbents by reducing financing constraints and facilitating their entry at larger firm sizes. On the other hand, the process of lowering financing constraints democratized entry and created a lot more churning among entrants, particularly at the low end of the size distribution. Our results highlight that this large-scale entry at the extensive margin can obscure the more subtle intensive margin effects of changes in financing constraints. |
| Keywords: | entrepreneurship, entry size, financial constraints, banking. |
| JEL: | E44 G21 L26 L43 M13 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:10-010&r=bec |
| By: | Federico Etro |
| Abstract: | We characterize the optimal financial structure as a strategic de- vice to optimize the value of a firm competing in a market whose struc- ture is endogenous. Contrary to traditional results based on duopolies and depending on the form of competition, we show the general opti- mality of moderate debt financing whenever positive shocks increase the marginal profitability of strategies that reduce prices, indepen- dently from whether they are strategic susbtitutes or complements. We derive the general formulas for the optimal financial structure un- der Cournot and Bertrand competition with endogenous entry and cost uncertainty and extend the results in many directions. |
| Keywords: | Financial structure, Debt, Modigliani-Miller theorem, Endogenous entry |
| JEL: | G31 G32 L11 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:165&r=bec |
| By: | Grace H.Y. Lee |
| Abstract: | Every economy experiences peaks and troughs in its business cycle. It has always been the researchers’ interests to identify the underlying causes of shocks. In the business cycle literature, there exists a new strand of methodology that allows the analysis at a disaggregated level using the dynamic factor model. This model allows the decomposition of aggregate shocks into country-specific, regional and world common business cycles for eight East Asian economies of China, Japan, Korea, Indonesia, Malaysia, the Philippines, Singapore and Thailand. It therefore allows the identification of causes for major events experienced by these countries. Empirical evidences show that country factors are the most important causes of major events for all these countries examined here, implying the needs to rely more heavily on its own independent counter-cyclical policies. The region factor is largest for the most developed economies in the region such as Japan, Korean and Singapore, indicating that a regional coordinated policy is more effective for these economies to respond to the disturbances. The world factor explains only 8% of the output variation in East Asia for the median country. In addition, the examination of the contribution of world, region and country-specific factors to the major economic fluctuations of each East Asian country in the past decades shows that the role of world factor is insignificant (with the exception of the first oil shock in 1974). This might explain why the world economy was stabilised through periods of US slowdown by the East Asian economies. |
| Keywords: | Business Cycle; East Asia; Aggregate Shocks Decomposition; Dynamic Factor Model; Bayesian |
| JEL: | E3 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2009-17&r=bec |
| By: | Piyapas Tharavanij |
| Abstract: | This paper investigates cross-country evidence on how capital markets affect business cycle volatilities. In contrast to the large and growing literature of finance and growth, empirical work on the relationship between finance, particularly capital markets, and volatility has been relatively scarce, though theoretically, more developed capital markets should lead to lower macroeconomic volatilities. Results are generated using panel estimation technique with data from 44 countries covering the years 1975 through 2004. The major finding is that countries with more developed capital markets have smoother economic fluctuations. The results hold under various estimation methods and after controlling for other relevant variables, country specific effects, and plausible endogeneity problems. |
| Keywords: | business cycle, capital market, financial development, financial structure, panel data, market-based, bank-based |
| JEL: | C33 E32 E44 G00 G21 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2007-33&r=bec |