nep-bec New Economics Papers
on Business Economics
Issue of 2010‒02‒13
twenty-one papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Profit Sharing, Wage Formation and Flexible Outsourcing under Labor Market Imperfection By Koskela, Erkki; König, Jan
  2. Screening, Competition, and Job Design: Economic Origins of Good Jobs By Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M.
  3. Slip Sliding Away: Further Union Decline in Germany and Britain By John T. Addison; Alex Bryson; Paulino Teixeira; André Pahnke
  4. Corporate Risk Taking and Ownership Structure By Teodora Paligorova
  5. Low-Wage Careers: Are There Dead-End Firms and Dead-End Jobs? By Mosthaf, Alexander; Schnabel, Claus; Stephani, Jens
  6. The Evolution of the Returns to Human Capital in Canada, 1980-2005 By Boudarbat, Brahim; Lemieux, Thomas; Riddell, W. Craig
  7. Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies By Andrew Ellul; Vijay Yerramilli
  8. Business cycles and the scale of economic shock By Coccia Mario
  9. Do private equity owned firms have better management practices?. By Bloom, Nick; Sadun, Raffaella; Van Reenen, John
  10. What Drives Exchange Rates? New Evidence from a Panel of U.S. Dollar Bilateral Exchange Rates By Jean-Philippe Cayen; Donald Coletti; Rene Lalonde; Philipp Maier
  11. Connective Capital as Social Capital: The Value of Problem-Solving Networks for Team Players in Firms By Casey Ichniowski; Kathryn L. Shaw
  12. Pay Enough, Don't Pay Too Much or Don't Pay at All? The Impact of Bonus Intensity on Job Satisfaction By Pouliakas, Konstantinos
  13. Forecast horizon of 5th – 6th – 7th long wave and short-period of contraction in economic cycles By Coccia Mario
  14. Relative Wage Positions and Quit Behavior: New Evidence from Linked Employer-Employee Data By Christian Pfeifer; Stefan Schneck
  15. Why Do BLS Hours Series Tell Different Stories About Trends in Hours Worked? By Frazis, Harley; Stewart, Jay
  16. Discrimination and Employment Protection By Holden, Steinar; Rosén, Åsa
  17. Entry Selection By J.J.A. Kamphorst; E. Mendys-Kamphorst; B. Westbrock
  18. Ownership and High-Growth Firms By Bjuggren, Carl Magnus; Daunfeldt, Sven-Olov; Johansson, Dan
  19. Greasing the Wheels of International Commerce: How Services Facilitate Firms' International Sourcing By Peter Debaere; Holger Görg; Horst Raff
  20. Insider Econometrics: Empirical Studies of How Management Matters By Casey Ichniowski; Kathryn L. Shaw
  21. The Role of Headquarters Firms in Multinational Profit Shifting Strategies By Dischinger, Matthias; Riedel, Nadine

  1. By: Koskela, Erkki (University of Helsinki); König, Jan (Free University of Berlin)
    Abstract: We combine profit sharing and outsourcing, if the wage for worker is decided by a labor union to analyze how does the implementation of profit sharing affect individual effort and the bargained wage and thus outsourcing? We find that profit sharing and the wage level have an individual effort-augmenting effect and therefore increase productivity. We also find that the wage effect of profit sharing is ambiguous. There is a wage decreasing substitution effect, but on the other hand, there is a wage increasing effect via labor demand elasticity so that outsourcing and employment effects are also ambiguous.
    Keywords: employee effort, profit sharing, flexible outsourcing, labor market imperfection
    JEL: E23 E24 J23 J33 J82
    Date: 2010–01
  2. By: Bartling, Björn (University of Zurich); Fehr, Ernst (University of Zurich); Schmidt, Klaus M. (University of Munich)
    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
  3. By: John T. Addison (Moore School of Business, University of South Carolina, Queen’s University School of Management, IZA, and GEMF); Alex Bryson (National Institute of Economic and Social Research and CEP); Paulino Teixeira (Faculdade de Economia/GEMF, University of Coimbra); André Pahnke (Institut für Arbeitsmarkt- und Berufsforschung, Bundesagentur für Arbeit)
    Abstract: This paper presents the first comparative analysis of the decline in collective bargaining in two European countries where that decline has been most pronounced. Using workplace-level data and a common model, we present decompositions of changes in collective bargaining and worker representation in the private sector in Germany and Britain over the period 1998-2004. In both countries within-effects dominate compositional changes as the source of the recent decline in unionism. Overall, the decline in collective bargaining is more pronounced in Britain than in Germany, thus continuing a trend apparent since the 1980s. Although workplace characteristics differ markedly across the two countries, assuming counterfactual values of these characteristics makes little difference to unionization levels. Expressed differently, the German dummy looms large.
    JEL: J5
    Date: 2010–02
  4. By: Teodora Paligorova
    Abstract: This paper investigates the determinants of corporate risk taking. Shareholders with substantial equity ownership in a single company may advocate conservative investment policies due to greater exposure to firm risk. Using a large cross-country sample, I find a positive relationship between corporate risk taking and equity ownership of the largest shareholder. This result is entirely driven by investors holding the largest equity stakes in more than one company. Family shareholders avoid corporate risk taking as their ownership increases unlike mutual funds, banks, financial and industrial companies. Stronger legal protection of shareholder rights is associated with more risk taking, while stronger legal protection of creditor rights reduces risk taking.
    Keywords: Financial markets; International topics
    JEL: G34 G31
    Date: 2010
  5. By: Mosthaf, Alexander (IAB, Nürnberg); Schnabel, Claus (University of Erlangen-Nuremberg); Stephani, Jens (IAB, Nürnberg)
    Abstract: Using representative linked employer-employee data of the German Federal Employment Agency, this paper shows that just one out of seven full-time employees who earned low wages (i.e. less than two-thirds of the median wage) in 1998/99 was able to earn wages above the low-wage threshold in 2003. Bivariate probit estimations with endogenous selection indicate that upward wage mobility is higher for younger and better qualified low-wage earners, whereas women are substantially less successful. We show that the characteristics of the employing firm also matter for low-wage earners' probability of escaping low-paid work. In particular small plants and plants with a high share of low-wage earners often seem to be dead ends for low-wage earners. The likelihood of leaving the low-wage sector is also low when staying in unskilled and skilled service occupations and in unskilled commercial and administrational occupations. Consequently, leaving these dead-end plants and occupations appears to be an important instrument for achieving wages above the low-wage threshold.
    Keywords: low-wage employment, wage mobility, Germany
    JEL: J30 J60
    Date: 2010–01
  6. By: Boudarbat, Brahim; Lemieux, Thomas; Riddell, W. Craig
    Abstract: We examine the evolution of the returns to human capital in Canada over the period 1980-2005. Our main finding is that returns to education increased substantially for Canadian men, contrary to conclusions reached previously. Most of this rise took place in the early 1980s and since 1995. Returns to education also rose, albeit more modestly, for Canadian women. Another important development is that after years of expansion, the wage gap between younger and older workers stabilized after 1995. Controlling for work experience and using Canadian Census data appear to account for the main differences between our results and earlier findings.
    Keywords: Human Capital, Wage Differentials, Canada
    JEL: J24 J31
    Date: 2010–01–30
  7. By: Andrew Ellul; Vijay Yerramilli
    Abstract: In this paper, we investigate whether U.S. bank holding companies (BHCs) with strong and independent risk management functions had lower aggregate risk and downside risk. We hand-collect information on the organization structure of the 75 largest publicly-listed BHCs, and use this information to construct a Risk Management Index (RMI) that measures the strength of organizational risk controls at these institutions. We find that BHCs with a high RMI in the year 2006, i.e., before the onset of the financial crisis, had lower exposures to mortgage-backed securities and risky trading assets, were less active in trading off-balance sheet derivatives, and generally fared better in terms of operating performance and lower downside risk during the crisis years (2007 and 2008). In a panel spanning 8 years, we find that BHCs with higher RMIs had lower aggregate risk and downside risk, and higher stock returns, after controlling for size, profitability, a variety of risk characteristics, corporate governance, executive compensation, and BHC fixed effects. This result holds even after controlling for any simultaneity bias. Overall, these results suggest that strong internal risk controls are effective in lowering risk at banking institutions.
    Date: 2010–02
  8. By: Coccia Mario (Ceris - Institute for Economic Research on Firms and Growth, Moncalieri (Turin), Italy)
    Abstract: The purpose of this paper is to determine the scale of economic shocks (SES), considering a new indicator based on the duration (in months) of contractions and expansions within Business Cycles and their amplitude, measured by GDP percent change based on chained 2000 dollars. Data of US Business cycles are used. The result is that the SES shows the real economic impact of contractions and expansions over time and serves as a warning signal that the economic system is entering into a turbulent state in the short-run.
    Keywords: Business Cycles, Economic shock, Contractions, Expansions
    JEL: E30 E32 E37
    Date: 2009–12
  9. By: Bloom, Nick; Sadun, Raffaella; Van Reenen, John
    Abstract: We use an innovative survey tool to collect management practice data from over 4,000 medium sized manufacturing firms across Asia, Europe and the US. These measures of managerial practice are strongly associated with firm-level performance (e.g. productivity, profitability and stock market value). Private Equityowned firms are significantly better managed than government, family and privately owned firms. Although they are also better managed on average than publicly listed firms with dispersed owners, this difference is not statistically significant. Looking at management practices in detail we find that Private Equity-owned firms have strong people management practices (hiring, firing, pay and promotions) but even stronger operations management practices (lean manufacturing, continuous improvement and monitoring). This suggests that Private Equity ownership is associated with broad based operational improvement in management rather than just stronger performance incentives. Finally, looking at changes in management practices over time, it appears that Private Equity targets poorly managed firms and these firms improve their management practices at a faster rate than other ownership types.
    Date: 2009–07
  10. By: Jean-Philippe Cayen; Donald Coletti; Rene Lalonde; Philipp Maier
    Abstract: We use a novel approach to identify economic developments that drive exchange rates in the long run. Using a panel of six quarterly U.S. bilateral real exchange rates – Australia, Canada, the euro, Japan, New Zealand and the United Kingdom – over the 1980-2007 period, a dynamic factor model points to two common factors. The first factor is driven by U.S. shocks, and cointegration analysis points to a long-run statistical relationship with the U.S. debt-to-GDP ratio, relative to all other countries in our sample. The second common factor is driven by commodity prices. Incorporating these relationships directly into a state-space model, we find highly significant coefficients. Then, we decompose the historical variation of each exchange rate into U.S. shocks, commodities, and a domestic component. We find a strong role for economic fundamentals: Changes in the two common factors, which are driven by the (relative) U.S. debt-to-GDP ratio and commodity prices, can explain between 36 and 96 per cent of individual countries' exchange rates in our panel.
    Keywords: Exchange rates; Econometric and statistical methods
    JEL: J31
    Date: 2010
  11. By: Casey Ichniowski; Kathryn L. Shaw
    Abstract: Traditional human capital theory emphasizes a worker’s investment in knowledge. However, when a worker is faced with day-to-day problems on the job, the solutions to the problems often require more knowledge from a team of experts within the firm. When a worker taps into the knowledge of experts, the worker develops his “connective capital.” Firms that value problem solving highly will develop the human resource management practices that support the environment of sharing knowledge. Data from the steel industry displays these concepts. For seven large steel mills, we gather data on the communications networks of steelworkers. The data shows that networks are exceedingly diverse across mills, and that the mills that have human resource management practices that support teamwork are the mills that have with much more dense high-volume communications links among workers. That is, workers in team-orientated mills have much higher levels of personal connective capital used for problem-solving.
    JEL: J24 J3 J31
    Date: 2009–12
  12. By: Pouliakas, Konstantinos (University of Aberdeen)
    Abstract: Using ten waves (1998-2007) of the British Household Panel Survey (BHPS), this paper investigates the ceteris paribus association between the intensity of incentive pay, the dynamic change in bonus status and the utility derived from work. After controlling for individual heterogeneity biases, it is shown that job utility rises only in response to 'generous' bonus payments, primarily in skilled, non-unionized, private sector jobs. Revoking a bonus from one year to the next is found to have a detrimental impact on employee utility, while job satisfaction tends to diminish over time as employees potentially adapt to bonuses. The findings are therefore consistent with previous experimental evidence, suggesting that employers wishing to motivate their staff should indeed "pay enough or don't pay at all".
    Keywords: incentives, intensity, bonus, performance pay, job satisfaction
    JEL: C23 J28 J33 M52 M54
    Date: 2010–01
  13. By: Coccia Mario (Ceris - Institute for Economic Research on Firms and Growth, Moncalieri (Turin), Italy)
    Abstract: The purpose of this essay is to determine the forecast horizon of the fifth, sixth and seventh long wave. As the period of each long wave can change according to the data, it has been used a deterministic approach, based on historical chronologies of USA and UK economies worked out by several scholars, to determine average timing, period and forecast error of future long waves. In addition, the analysis shows that long waves have average upwave period longer than average downwave one. This result is also confirmed by US Business Cycles that have average contractions shorter than expansions phase over time.
    Keywords: Forecast Horizon, Long Waves, Kondratieff Waves, Business Cycles, Asymmetric Path
    JEL: E30 E37
    Date: 2009–12
  14. By: Christian Pfeifer (Institute of Economics, Leuphana University of Lüneburg, Germany); Stefan Schneck (Institute of Empirical Economic Research, Leibniz Universität Hannover)
    Abstract: We use a large linked employer-employee data set to analyze the importance of relative wage positions in the context of individual quit decisions as an inverse measure of job satisfaction. Our main findings are: (1) Workers with higher relative wage positions within their firms are on average more likely to quit their jobs than workers with lower relative wage positions; and (2) workers, who experience a loss in their relative wage positions, are also more likely to have a wage cut associated with their job-to-job transition. The overall results therefore suggest that the status effect is dominated by an opposing signal effect.
    Keywords: comparison income, mobility, signaling, status, wages
    JEL: J31 J62 J63 M52
    Date: 2010–02
  15. By: Frazis, Harley (U.S. Bureau of Labor Statistics); Stewart, Jay (U.S. Bureau of Labor Statistics)
    Abstract: Hours worked is an important economic indicator. In addition to being a measure of labor utilization, average weekly hours are inputs into measures of productivity and hourly wages, which are two key economic indicators. However, the Bureau of Labor Statistics' two hours series tell very different stories. Between 1973 and 2007 average weekly hours estimated from the BLS's household survey (the Current Population Survey or CPS) indicate that average weekly hours of nonagricultural wage and salary workers decreased slightly from 39.5 to 39.3. In contrast, average hours estimated from the establishment survey (the Current Employment Statistics survey or CES) indicate that hours fell from 36.9 to 33.8 hours per week. Thus the discrepancy between the two surveys increased from about two-and-a-half hours per week to about five-and-a-half hours. Our goal in the current study is to reconcile the differences between the CPS and CES estimates of hours worked and to better understand what these surveys are measuring. We examine a number of possible explanations for the divergence of the two series: differences in workers covered, multiple jobholding, differences in the hours concept (hours worked vs. hours paid), possible overreporting of hours in CPS, and changes in the length of CES pay periods. We can explain most of the difference in levels, but cannot explain the divergent trends.
    Keywords: hours of work, comparison of household and establishment surveys
    JEL: C81 J22
    Date: 2010–01
  16. By: Holden, Steinar (Dept. of Economics, University of Oslo); Rosén, Åsa (Stockholm University (SOFI))
    Abstract: We study a search model with employment protection legislation. We show that if the output from the match is uncertain ex ante, there may exist a discriminatory equilibrium where workers with the same productive characteristics are subject to different hiring standards. If a bad match takes place, discriminated workers will use longer time to find another job, prolonging the costly period for the firm. This makes it less profitable for the firms to hire the discriminated workers, thus sustaining discrimination. In contrast to standard models, the existence of employers with a taste for discrimination may make it more profitable to discriminate also for firms without discriminatory preferences.
    Keywords: Discrimination; Employment Protection; Hiring Standards
    JEL: J60 J70
    Date: 2009–09–29
  17. By: J.J.A. Kamphorst; E. Mendys-Kamphorst; B. Westbrock
    Abstract: It is well-known in the IO literature that incumbent firms may want to deter entry by behaving as if they are efficient. In this paper we show that incumbents may sometimes prefer to encourage entry by mimicking the behaviour of a less efficient firm for the following reason. If the incumbent cannot deter potential efficient entrants, he may want to elicit entry by an inefficient firm who would not enter if he knows that the incumbent is efficient. The presence of the additional firm in the market prevents further entry. The incumbent then faces a less efficient competitor in the long run.
    Keywords: Duopoly competition, entry deterrence, signalling weakness
    JEL: D43 D82 L11
    Date: 2009–12
  18. By: Bjuggren, Carl Magnus (Ratio); Daunfeldt, Sven-Olov (Ratio); Johansson, Dan (Ratio)
    Abstract: Empirical studies demonstrate that most net job-growth originates from a small number of high-growth firms (HGFs). The purpose of this paper is to analyze whether firm ownership – private non-family, or family – matters for being classified as a HGF, using data covering all firms in Sweden during 1993-2006. We find that ownership and changes of ownership are correlated with being a HGF, and that the method of measuring growth affects the results. In line with previous research, the age and size of firms, as well as belonging to an enterprise group, are also correlated with being a HGF.
    Keywords: high-growth firms; gazelles; firm growth; firm ownership; family firms; rapid firm growth
    JEL: D24 L25 L26
    Date: 2010–02–01
  19. By: Peter Debaere; Holger Görg; Horst Raff
    Abstract: We use unique plant-level data to study the link between the local availability of services and the decision of manufacturing firms to source materials from abroad. To guide our empirical analysis we develop a monopolitic-competition model of the materials sourcing decisions of heterogeneous firms. The model generates predictions about how the intensity of international sourcing of materials depends on a firm's productivity and the availability of local services. These predictions are supported by the data. We find evidence that more productive manufacturing firms tend to have a higher ratio of imported materials to sales. In addition, we find evidence that services grease the wheels of international commerce: A greater availability of services across regions, industries and time increases a firmÄs foreign sourcing of materials relative to sales. Interestingly, this positive impact of local service availability on imports especially applies to stand-alone firms that, unlike multinationals, are less likely to rely on imported or internally provided services
    Keywords: international trade, services, off-shoring, supply chain management, firm heterogeneity
    JEL: F12 L23
    Date: 2010–01
  20. By: Casey Ichniowski; Kathryn L. Shaw
    Abstract: This paper describes an approach for conducting empirical research into three interrelated questions that are fundamental to the field of organizational economics: 1. Why do firms in the same industry adopt different management practices? 2. Does the adoption of a new management practice raise productivity? 3. If so, why does the new management practice raise productivity? This research approach, which we term insider econometrics, addresses these questions by combining insights from industry insiders with rigorous econometric tests about the adoption and productivity effects of new management practices using rich industry-specific data. Understanding the selectivity in the adoption and coverage of different management practices within a single industry is central to this empirical research methodology. The paper considers a number of studies to illustrate persuasive features of insider econometric research and summarizes a number of themes emerging from this line of research.
    JEL: D2 J01 L2
    Date: 2009–12
  21. By: Dischinger, Matthias; Riedel, Nadine
    Abstract: This paper stresses the special role of multinational headquarters in corporate profit shifting strategies. Using a large panel of European firms, we show that multinational enterprises (MNEs) are reluctant to shift profits away from their headquarters even if these are located in high-tax countries. Thus, shifting activities in response to corporate tax rate differentials between parents and subsidiaries are found to be significantly larger if the parent observes a lower corporate tax rate than its subsidiary and profit is thus shifted towards the headquarters firm. This result is in line with recent empirical evidence suggesting that MNEs bias the location of profits and highly profitable assets in favor of the headquarters location (for agency cost reasons among others).
    Keywords: multinational firm; profit shifting; headquarters location
    JEL: H25 H26 C33
    Date: 2010–02–03

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