nep-bec New Economics Papers
on Business Economics
Issue of 2010‒01‒30
twenty-two papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Individual vs. Collective Bargaining in the Large Firm Search Model By Bauer, Christian; Lingens, Jörg
  2. Does family control of small business lead to under exploitation of their financial growth potential? Evidence of the existence of conservative growth behavior in family controlled French SMEs. By Anaïs Hamelin
  3. Monetary cycles, financial cycles, and the business cycle By Tobias Adrian; Arturo Estrella; Hyun Song Shin
  4. Employee Screening- Theory and Evidence By Fali Huang; Peter Cappelli
  5. Composition Bias and Italian Wage Rigidities over the Business Cycle By Isabella David
  6. Screening, Competition, and Job Design By Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M.
  7. Financial intermediation, asset prices, and macroeconomic dynamics By Tobias Adrian; Emanuel Moench; Hyun Song Shin
  8. Optimal Collusion with Internal Contracting By Gea M. Lee
  9. Directed Search on the Job, Heterogeneity, and Aggregate Fluctuations By Guido Menzio; Shouyong Shi
  10. Pension Benefit and Hours Worked By MIYAZAWA Kensuke
  11. Growth, fluctuations and technology in the U.S. post-war economy By Jesús Rodríguez López
  12. Inefficient Worker Turnover By Nicolas L. Jacquet
  13. Solving the Present Crisis and Managing the Leverage Cycle By John Geanakoplos
  14. Liquidity Constraints, Household Wealth, and Self-Employment: The Case of Older Workers By Julie Zissimopoulos; Lynn A. Karoly; Qian Gu
  15. The Leverage Cycle By John Geanakoplos
  16. Investigating the Perceptions of Credit Constraints in the European Union By Canton, E.J.F.; Grilo, I.; Monteagudo, J.; Zwan, P. van der
  17. The Impact Of The Global Crisis on Canada: What Do Macro-Financial Linkages Tell Us? By Natalia Barrera; Rupa Duttagupta
  18. The 2004 Global Labor Survey- Workplace Institutions and Practices Around the World By Davin Chor; Richard B. Freeman
  19. Financial Variables as Predictors of Real Output Growth By Anthony S. Tay
  20. Social Preferences and Competition By Schmidt, Klaus M.
  21. After the Crisis: Lower Consumption Growth but Narrower Global Imbalances? By Ashoka Mody; Franziska Ohnsorge
  22. Modelling the Cyclical Behaviour of Wine Production in the Douro Region Using a Time-Varying Parameters Approach By Mario Cunha; Christian Richter

  1. By: Bauer, Christian; Lingens, Jörg
    Abstract: We analyze the welfare and employment effects of different wage bargaining regimes. Within the large firm search model, we show that collective bargaining affects employment via two channels. Collective bargaining exerts opposing effects on job creation and wage setting. Firms have a stronger incentive for strategic employment, while workers benefit from the threat of a strike. We find that the employment increase due to the strategic motive is dominated by the employment decrease due to the increase in workers' threat point. In aggregate equilibrium, employment is ineciently low under collective bargaining. But it is not always true that equilibrium wages exceed those under individual bargaining. If unemployment benefits are sufficiently low, collectively bargained wages are smaller. The theory sheds new light on policies concerned with strategic employment and the relation between replacement rates and the extent of collective wage bargaining.
    Keywords: search; overemployment; collective wage bargaining; wage determination
    JEL: J30 J50 J41
    Date: 2010–01
  2. By: Anaïs Hamelin (Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg)
    Abstract: This paper uses a very large sample of French SMEs to study growth of small businesses. Firms are distinguished according to the intensity of family control. The estimated relationship accounts for firm characteristics of size, age, sector, and ease to access credit. The results show that firms with greater family control are prone to exhibit lower rates of sales growth than feasible, given firm internal financing resources (ie they adopt a conservative growth behavior). Because firm growth is limited not by financing constraints but by family-related incentives to restrict firm size, increasing firm growth requires policies that shape incentives orientated toward growth in small family businesses.
    Keywords: Small Business, Family control, Growth, Sustainable growth, Tax evasion.
    JEL: G31 G32 M13 M21
    Date: 2010
  3. By: Tobias Adrian; Arturo Estrella; Hyun Song Shin
    Abstract: One of the most robust stylized facts in macroeconomics is the forecasting power of the term spread for future real activity. The economic rationale for this forecasting power usually appeals to expectations of future interest rates, which affect the slope of the term structure. In this paper, we propose a possible causal mechanism for the forecasting power of the term spread, deriving from the balance sheet management of financial intermediaries. When monetary tightening is associated with a flattening of the term spread, it reduces net interest margin, which in turn makes lending less profitable, leading to a contraction in the supply of credit. We provide empirical support for this hypothesis, thereby linking monetary cycles, financial cycles, and the business cycle.
    Keywords: Monetary policy ; Intermediation (Finance) ; Interest rates ; Forecasting ; Business cycles
    Date: 2010
  4. By: Fali Huang; Peter Cappelli (Singapore Management University)
    Abstract: Arguably the fundamental problem faced by employers is how to elicit effort from employees. Most models suggest that employers meet this challenge by monitoring employees carefully to prevent shirking. But there is another option that relies on heterogeneity across employees, and that is to screen job candidates to find workers with a stronger work ethic who require less monitoring. This should be especially useful in work systems where monitoring by supervisors is more difficult, such as teamwork systems. We analyze the relationship between screening and monitoring in the context of a principal-agent model and test the theoretical results using a national sample of U.S. establishments, which includes information on employee selection. We find that employers screen applicants more intensively for work ethic where they make greater use of systems such as teamwork where monitoring is more difficult. This screening is also associated with higher productivity and higher wages and benefits, as predicted by the theory- The synergies between reduced monitoring costs and high performance work systems enable the firm to pay higher wages to attract and retain such workers. Screening for other attributes, such as cognitive ability, does not produce these results.
    Keywords: elicit effort from employees, worker, screening, monitoring, cognitive ability
    JEL: J2 J3
    Date: 2010–01
  5. By: Isabella David
    Abstract: I estimate the cyclicality of Italian real wages over the period 1985-2003 controlling for the so-called "composition bias". Aggregate real wage statistics, commonly used to measure real wage elasticity, are affected by the bias arising from the cyclical change in the skill-composition of the labor force. An analysis on WHIP longitudinal data shows that the degree of Italian real wage procyclicality significantly increases after controlling for composition bias: this result is robust to several checks and it is consistent with Solon, Barsky and Parker's 1994 seminal paper on the US. Finally, I discuss the effects of the the 90's labor market's reforms on Italian real wage cyclicality.
    Date: 2009
  6. By: Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M.
    Abstract: In recent decades, many firms offered more discretion to their employees, often increasing the productivity of effort but also leaving more opportunities for shirking. These “high-performance work systems” are difficult to understand in terms of standard moral hazard models. We show experimentally that complementarities between high effort discretion, rent-sharing, screening opportunities, and competition are important driving forces behind these new forms of work organization. We document in particular the endogenous emergence of two fundamentally distinct types of employment strategies. Employers either implement a control strategy, which consists of low effort discretion and little or no rent-sharing, or they implement a trust strategy, which stipulates high effort discretion and substantial rent-sharing. If employers cannot screen employees, the control strategy prevails, while the possibility of screening renders the trust strategy profitable. The introduction of competition substantially fosters the trust strategy, reduces market segmentation, and leads to large welfare gains for both employers and employees.
    Keywords: job design; high-performance work systems; screening; reputation; competition; trust; control; social preferences; complementarities
    JEL: C91 D86
    Date: 2010–01
  7. By: Tobias Adrian; Emanuel Moench; Hyun Song Shin
    Abstract: Fluctuations in the aggregate balance sheets of financial intermediaries provide a window on the joint determination of asset prices and macroeconomic aggregates. We document that financial intermediary balance sheets contain strong predictive power for future excess returns on a broad set of equity, corporate, and Treasury bond portfolios. We also show that the same intermediary variables that predict excess returns forecast real economic activity and various measures of inflation. Our findings point to the importance of financing frictions in macroeconomic dynamics and provide quantitative guidance for preemptive macroprudential and monetary policies.
    Keywords: Macroeconomics ; Intermediation (Finance) ; Assets (Accounting) ; Forecasting
    Date: 2010
  8. By: Gea M. Lee (Singapore Management University)
    Abstract: In this paper, we develop a model of collusion in which two firms play an infinitelyrepeated Bertrand game when each firm has a privately-informed agent. The colluding firms, fixing prices, allocate market shares based on the agent’s information as to cost types. We emphasize that the presence of privately-informed agents may provide firms with a strategic opportunity to exploit an interaction between internal contracting and market-sharing arrangement- the contracts with agents may be used to induce firms’ truthful communication in their collusion, and collusive market-share allocation may act to reduce the agents’ information rents.
    Keywords: Optimal collusion, internal contract, privately-informed agents, price-fixing
    JEL: C73 L13 L14
    Date: 2010–01
  9. By: Guido Menzio; Shouyong Shi
    Abstract: We study a labor market where workers search for jobs both on the job and off the job. In the model, there are aggregate productivity shocks and match-specific shocks. We outline the proof of existence of an equilibrium which we call a block recursive equilibrium (BRE), in which individuals' decisions and market tightness are independent of the distribution of workers over wages or contracts. A critical assumption that is responsible for a BRE to exist is that search is directed by firms' posting of contracts. We explain why a BRE does exist under the assumption of directed search and why it does not under the assumption of random search. Finally, we generalize the proof of existence of a BRE to allow workers to be ex-ante heterogeneous with respect to some observable characteristics such as education and skill.
    Keywords: Directed Search; On the Job Search; Heterogeneity; Aggregate Fluctuations
    JEL: E24 E32 J64
    Date: 2010–01–21
  10. By: MIYAZAWA Kensuke
    Abstract: This paper clarifies the effects of pension benefit systems on aggregate hours worked. By incorporating the labor income taxes and the social security taxes into a representative agent model, previous studies successfully explain the long term decline in the hours worked in some continental European countries, and the differences between these European countries and the U.S. in recent years. However, their model underpredicts the hours worked in Japan and Sweden. We measure the marginal pension benefit rates of the labor supply, which the previous studies do not take into account, and incorporate them into previous studies. We fid that the marginal pension benefit can explain much of the discrepancy between the actual hours worked and the predictions of the previous studies. This result also implies that the pension benefit might offset the effect of the unemployment insurance that is thought to make the prediction worse in some continental European countries.
    Date: 2010–01
  11. By: Jesús Rodríguez López (Department of Economics, Universidad Pablo de Olavide)
    Abstract: This paper explores several issues concerning how technology affects growth and fluctuations during several U.S. postwar series. The nature of technology is divided into neutral progress and investment-specific progress. Accounting for several changes in the first and second order moments of these series (the slowdown of productivity in 1974, the moderation of 1984 and the resurgence in productivity after 1994), I find that the contribution of investment-specific progress to growth has increased over time. I also find that neutral progress is crucial in explaining the cyclical component of output (before and after 1984), contrary to results found in related literature. However, the shocks to investment-specific progress have played an increasing role in output and other macroeconomic variables. Finally, I conclude that moderation in the macroeconomic series can be associated with technology. In sum, the quality of technological processes affecting long run growth and fluctuations has changed over the past decades.
    Keywords: Productivity growth; Investment-specific technological change; Neutral technological change
    JEL: O3 O4
    Date: 2010–01
  12. By: Nicolas L. Jacquet (Singapore Management University)
    Abstract: This paper considers the efficiency properties of risk-neutral workers’ mobility decisions in an equilibrium model with search frictions, but no search externalities, when the rent accruing to a match is split through bargaining. Matches are ex ante homogeneous and their true productivity is learnt after the match is formed. It is shown that the efficiency of worker turnover depends on contract enforceability, and that in the absence of complete enforceability the equilibrium fails to be efficient. This is because without complete enforceability firms cannot credibly offer workers contracts that will guarantee them the entire future of all potential future matches.
    Keywords: On-the-Job Search, Learning, Bargaining, Contracts, Enforceability
    JEL: J30 J63
    Date: 2010–01
  13. By: John Geanakoplos (Cowles Foundation, Yale University)
    Abstract: The present crisis is the bottom of a recurring problem that I call the leverage cycle, in which leverage gradually rises too high then suddenly falls much too low. The government must manage the leverage cycle in normal times by monitoring and regulating leverage to keep it from getting too high. In the crisis stage the government must stem the scary bad news that brought on the crisis, which often will entail coordinated write downs of principal; it must restore sane leverage by going around the banks and lending at lower collateral rates (not lower interest rates), and when necessary it must inject optimistic capital into firms and markets than cannot be allowed to fail. Economists and the Fed have for too long focused on interest rates and ignored collateral.
    Keywords: Leverage, Collateral, Margins, Leverage cycle, Externality, Principal
    JEL: E3 E32 G12
    Date: 2010–01
  14. By: Julie Zissimopoulos; Lynn A. Karoly; Qian Gu
    Abstract: Evidence of liquidity constraints affecting entrepreneurship includes increasing rates of business formation with increases in household wealth and no relationship between the likelihood of business formation and wealth at high wealth levels. Using longitudinal data from the Health and Retirement Study on workers over age 50 and employing probit regressions with a non-linear specification of household wealth and liquid wealth, the authors find the relationship between wealth and business formation is consistent with this pattern. The paper also finds that wealth matters more for the formation of businesses requiring high starting capital. Employing the availability of a lump-sum distribution option (LSO) of an employer-provided pension plan as a new proxy for liquidity, the results show that workers with an LSO are more likely than workers with a pension and without an LSO to transition into self-employment. This provides further evidence of the existence and importance of liquidity constraints.
    JEL: D31 L26
    Date: 2009–12
  15. By: John Geanakoplos (Cowles Foundation, Yale University)
    Abstract: Equilibrium determines leverage, not just interest rates. Variations in leverage cause fluctuations in asset prices. This leverage cycle can be damaging to the economy, and should be regulated.
    Keywords: Leverage, Collateral, Cycle, Crisis, Regulation
    JEL: E3 E32 G12
    Date: 2009–07
  16. By: Canton, E.J.F.; Grilo, I.; Monteagudo, J.; Zwan, P. van der (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The promotion and support of small and medium-sized enterprises (SMEs) forms an essential ingredient in policies to help improve Europe’s economic performance. A key issue in this context is whether SMEs face undue difficulty when trying to access credit. Using survey data from 2005 and 2006 covering almost 5,000 SMEs in the European Union, we investigate the determinants of firms’ perceived financing constraints, focusing on bank loans. It turns out that a firm’s age plays an important role in that older firms perceive external financing as being less difficult. Also, relationship banking helps to perceive an increased availability to credit. On the other hand, the ownership structure of a firm is not systematically related to perceived credit constraints, while turnover relaxes firms’ perceptions in the “new†EU 10 countries, but not in the “old†Member States. There exist significant country differences and this cross-country variation can be partly explained by the degree of competition in the banking sector. It has to be stressed that these survey data have been collected well before the present economic crisis; the results here do not describe the present situation but rather the more structural elements of the relationship between perceived access to credit and the determinants studied in a normal economic situation.
    Keywords: financing constraints;credit rationing;SMEs;Europe
    Date: 2010–01–04
  17. By: Natalia Barrera; Rupa Duttagupta
    Abstract: This paper builds a Bayesian VAR estimation model of growth for Canada, by focusing specifically on the role of external and domestic financial indicators, including credit conditions. A variance decomposition shows that financial conditions explain one-third of the total variability in Canada's real GDP growth, although changes in U.S. real GDP growth still account for a larger share of volatility in Canadian growth. A macro-financial conditions index built from the VAR's impulse responses shows that U.S. real GDP growth and lending standards will increasingly bear on Canada's growth, implying that a normalization of the U.S. economic and financial conditions is key for a sustained recovery in Canada.
    Keywords: Bank credit , Canada , Credit controls , Economic forecasting , Economic growth , Economic models , External sector , Financial crisis , Global Financial Crisis 2008-2009 , Gross domestic product , Monetary policy , Spillovers ,
    Date: 2010–01–11
  18. By: Davin Chor; Richard B. Freeman (Singapore Management University)
    Abstract: The 2004 Global Labor Survey (GLS) is an Internet-based survey that seeks to measure de facto labor practices in countries around the world, covering issues such as freedom of association, the regulation of work contracts, employee benefits and the prevalence of collective bargaining. To find out about de facto practices, the GLS invited labor practitioners, ranging from union officials and activists to professors of labor law and industrial relations, to report on conditions in their country. Over 1,500 persons responded, which allowed us to create indices of practices in ten broad areas for 33 countries. The GLS' focus on de facto labor practices contrasts with recent studies of de jure labor regulations (Botero et al., 2004) and with more limited efforts to measure labor practices as part of surveys of economic freedom (Fraser Institute) and competitiveness (World Economic Forum). Although our pool of respondents differs greatly from the conservative foundations and business leaders who contribute respectively to the Fraser Institute and World Economic Forum reports, the GLS and the labor market components of the economic freedom and competitiveness measures give similar pictures of labor practices across countries. This similarity across respondents with different economic interests and ideological perspectives suggests that they are all reporting on labor market realities in a relatively unbiased way. As a broad summary statement, the GLS shows that practices favorable to workers are more prevalent in countries with high levels of income per capita; are associated with less income inequality; are unrelated to aggregate growth rates; but are modestly positively associated with unemployment.
    Keywords: Labor Survey, industrial relation,
    JEL: J00 J80
    Date: 2010–01
  19. By: Anthony S. Tay (Singapore Management University)
    Abstract: We investigate two methods for using daily stock returns to forecast, and update forecasts of, quarterly real output growth. Both methods aggregate daily returns in some manner to form a single stock market variable. We consider (i) augmenting the quarterly AR(1) model for real output growth with daily returns using a nonparametric Mixed Data Sampling (MIDAS) setting, and (ii) augmenting the quarterly AR(1) model with the most recent r -day returns as an additional predictor. We discover that adding low frequency stock returns (up to annual returns, depending on forecast horizon) to a quarterly AR(1) model improves forecasts of output growth.
    Keywords: Forecasting, Mixed Frequencies, Functional linear regression
    Date: 2010–01
  20. By: Schmidt, Klaus M.
    Abstract: There is a general presumption that social preferences can be ignored if markets are competitive. Market experiments (Smith 1962) and recent theoretical results (Dufwenberg et al. 2008) suggest that competition forces people to behave as if they were purely self-interested. We qualify this view. Social preferences are irrelevant if and only if two conditions are met: separability of preferences and completeness of contracts. These conditions are often plausible, but they fail to hold when uncertainty is important (financial markets) or when incomplete contracts are traded (labor markets). Social preferences can explain many of the anomalies frequently observed on these markets.
    Keywords: Social preferences; competition; separability; incomplete contracts; asset markets; labor markets
    JEL: C9 D5 J0
    Date: 2010–01
  21. By: Ashoka Mody; Franziska Ohnsorge
    Abstract: We estimate consumption dynamics in the G-7 economies, paying particular attention to the possibility of precautionary behavior in the face of uncertainty. We find that in the short run, continued income uncertainty will significantly dampen consumption growth. As such, consumption in the G-7 economies is unlikely to be the engine that revives global growth. Differences in the pace and timing of consumption moderation have implications for the evolution of global imbalances. With the U.S. experiencing a sharper rise in unemployment and, perhaps, more widespread loss of financial wealth than elsewhere in the G-7, the relative rise of the U.S. savings rate is helping narrow global imbalances. But with a likely earlier recovery in the U.S., this narrowing could be short-lived. Moreover, long-term differences- in economic and financial volatility and in demographic structures-have been an important source of the imbalances and could soon reassert their prominence.
    Date: 2010–01–12
  22. By: Mario Cunha (Universidade do Porto); Christian Richter (School of Economics, Kingston University)
    Abstract: This paper investigates the cyclical behaviour of the wine production in Portugal’s Douro region during the period of 1932 to 2008. In general, wine production is characterised by large fluctuations. These fluctuations may cover the existence of deterministic cycles. Hence, in this paper, we decompose the wine production’s variance in order to find the dominating production cycles In the next step we try to explain those cycles using a dependent variable, namely the medium spring temperature for the period 1967 to 2008. We estimated a Time-Varying Autoregressive Model, which could explain 76% of wine variability (R2=0.76; n=69; p<0.000). When the temperature was incorporated the R-squared is much higher (R2=0.98; n=36; p<0.000) and the Akaike criterion value is lower. Hence, medium spring temperature causes a large amount of these cycles and the wine production variation reflects this relationship. In addition to an upward trend, there is a clearly identifiable cycle around the long term trend in Douro wine production. We also show how much of the production cycle and what cycle in particular is explained by the medium spring temperature. We use the short time Fourier Transform to decompose the link between wine production and temperature. We find: i) wine production is characterised by 4.8 and 2.5 year cycles; ii) by there is a strong link between wine production and the mean temperature in spring; iii) this link is not constant, but stable. In particular, the temperature is responsible for 5.2 and 2.4 year cycles – which has been happening since the 1980s, iv) the spring temperature can also be used to as an indicator for the six year and one year cycles of wine production.
    Keywords: Spectral Analysis, Time-varying spectra, Kalman filter, Wine forecast, Port Wine, Climate variability
    Date: 2010

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