nep-bec New Economics Papers
on Business Economics
Issue of 2010‒06‒11
twelve papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. On the dynamics of unemployment and wage distributions By Jean-Marc Robin
  2. Credit within the Firm By Luigi Guiso; Luigi Pistaferri; Fabiano Schivardi
  3. Technology shocks, employment and labour market frictions By Mandelman, Federico S; Zanetti, Francesco
  4. Unions Improve Chinese Workers' Welfare By Ninghua Zhong
  5. Business closure and financial loss: Who foots the bill? Evidence from German small business closures By Metzger, Georg
  6. Sunspots and Credit Frictions By Sharon G. Harrison; Mark Weder
  7. Mixed oligopoly, vertical product differentiation and fixed quality-dependent costs By Stefan Lutz; Mario Pezzino
  8. The Causes of Profit Heterogeneity in Large Australian Firms By Andreas Stierwald
  9. The Intranational Business Cycle in Japan By Michael Artis; Toshihiro Okubo
  10. Two Perspectives on Multiskilling and Product Market Volatility By DeVaro, Jed; Farnham, Martin
  11. Cross-border banking and the international transmission of financial distress during the crisis of 2007-2008 By Alexander Popov; Gregory F. Udell
  12. Does the institution of State Business Relations matter for Firm Performance? – A study of Indian Manufacturing By Kathuria, Vinish; Natarajan, Rajesh Raj; Sen, Kunal

  1. By: Jean-Marc Robin (Institute for Fiscal Studies and EUREQua, University of Paris 1)
    Abstract: <p>Postel-Vinay and Robin's (2002) sequential auction model is extended to allow for aggregate productivity shocks. Workers exhibit permanent differences in ability while firms are identical. Negative aggregate productivity shocks induce job destruction by driving the surplus of matches with low ability workers to negative values. Endogenous job destruction coupled with worker heterogeneity thus provides a mechanism for amplifying productivity shocks that offers an original solution to the unemployment volatility puzzle (Shimer, 2005). Moreover, positive or negative shocks may lead employers and employees to renegotiate low wages up and high wages down when agents' individual surpluses become negative. The model delivers rich business cycle dynamics of wage distributions and explains why both low wages and high wages are more procyclical than wages in the middle of the distribution and why wage inequality may be countercyclical, as the data seem to suggest is true.</p>
    Date: 2010–03
  2. By: Luigi Guiso; Luigi Pistaferri; Fabiano Schivardi
    Abstract: We exploit time variation in the degree of development of local credit markets and matched employer-employee data to assess the role of the firm as an internal credit market. In less developed local credit markets firms can offer a atter wage-tenure profile than firms in more developed credit markets to lend implicitly to their workers or offer a steeper profile to implicitly borrow from their workers. We find that firms located in less financially developed markets offer wages that are lower at the beginning of tenure and grow faster than those offered by firms in more financially developed markets, helping firms finance their operations by raising funds from workers. Because we control for local market effects and only exploit time variation in the degree of local financial development induced by an exogenous liberalization, the effect we find is unlikely to reect unobserved local factors that systematically affect wage tenure profiles. The size of implicit loans is larger for firms with more problematic access to bank credit and workers less likely to face credit constraints. The amount of credit generated by implicit lending within the firm is economically important and can be as large as 30% of bank lending. Consistent with credit market imperfections opening up trade opportunities within the firm, we find that the internal rate of return of implicit loans lies between the rate at which workers savings are remunerated in the market and the rate firms pay on their loans from banks.
    Keywords: Implicit contracts, financial frictions, tenure profile, wage setting
    JEL: J3 L2 G3
    Date: 2010
  3. By: Mandelman, Federico S (Federal Reserve Bank of Atlanta); Zanetti, Francesco (Bank of England)
    Abstract: Recent empirical evidence suggests that a positive technology shock leads to a decline in labour inputs. However, the standard real business model fails to account for this empirical regularity. Can the presence of labour market frictions address this problem, without otherwise altering the functioning of the model? We develop and estimate a real business cycle model using Bayesian techniques that allows, but does not require, labour market frictions to generate a negative response of employment to a technology shock. The results of the estimation support the hypothesis that labour market frictions are the factor responsible for the negative response of employment.
    Keywords: Technology shocks; employment; labour market frictions
    JEL: E32
    Date: 2010–06–03
  4. By: Ninghua Zhong (China Center for Economic Research)
    Abstract: Based on a survey of 1,268 firms in 12 Chinese cities, this paper empirically studies the effects of unions on three aspects of workers’ welfare, namely, hourly wages, monthly working hours, and pension coverage. Our baseline results show that unionization increases hourly wage rates by 5.6%, reduces monthly working hours by 1.4%, and raises pension coverage by 12.3%. Taking the endogeneity of unionization into consideration, our 3SLS estimation finds larger effects. These results are robust in the subsample of domestic private enterprises where unions are less common than in other types of firms. Further econometric analysis has established two channels for unions to improve workers’ welfare, one by encouraging collective wage contracts, and the other by encouraging written contracts.
    Keywords: Unionization, workers’ welfare, Chinese firms
    JEL: J3 J51
    Date: 2010
  5. By: Metzger, Georg
    Abstract: This paper explores how different reasons for business closure impact the probability that financial loss will be suffered by creditors. Using German small business data, the study finds that business closure due to financial problems is strongly correlated with a likelihood of financial loss. By contrast, closures that take place based on expectations about a business' future development or because the owner takes a different earning opportunity are less likely to entail losses for creditors. The findings suggest that creditors are better off when entrepreneurs have a clear picture of their own abilities and shortcomings, and don't suffer from all-too-frequent over-optimism. Consequently, creditors stand to gain from helping clients to assess financial prospects. --
    Keywords: Bankruptcy,business closure,financial loss
    JEL: G33 L26 M13
    Date: 2010
  6. By: Sharon G. Harrison (Department of Economics, Barnard College, Columbia University); Mark Weder (School of Economics, University of Adelaide)
    Abstract: We examine a general equilibrium model with collateral constraints and increasing returns to scale in production. The utility function is nonseparable, with no income effect on the consumer's choice of leisure. Unlike this model without a collateral constraint, we find that indeterminacy of equilibria is possible. Hence, business cycles can be driven by self-fulfilling expectations. This is the case for more realistic parametrizations than in previous, similar models without these features.
    Keywords: Business cycles, Credit markets, Collateral Constraint, Sunspots
    JEL: E32
    Date: 2010–01
  7. By: Stefan Lutz; Mario Pezzino
    Abstract: A private and a public firm face fixed quality-dependent costs of production and compete first in quality and then either in prices or in quantities. In the long run the public firm targets welfare maximization whereas the private firm maximizes profits. In the short run both firms compete in prices or quantities to maximize profits. Mixed competition is always socially desirable compared to a private duopoly regardless of the type of competition in the short run and the equilibrium quality ranking. In addition, mixed competition seems to be a more efficient regulatory instrument than the adoption of a minimum quality standard.
    Keywords: vertical product differentiation, mixed oligopoly, quality, price and quantity competition
    JEL: L13 L33 L50 H44
    Date: 2010–05
  8. By: Andreas Stierwald (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: The objective of this paper is to investigate the causes of heterogeneity in firm performance. In particular, the study decomposes unobserved heterogeneity in profitability into firm and industry effects and quantifies the relative importance of both these effects. For a sample of large Australian firms for the period 1995-2005, the estimation results indicate that almost two thirds of the heterogeneity can be explained by differences across firms, and that industry effects are of much less importance. Another result is that the level of total factor productivity, as a component of firm effects, significantly enhances profitability, but also that this relationship is not identical among firms.
    Keywords: firm performance, determinants of profit, multi-level analysis, firm effects
    JEL: C23 D24 L25
    Date: 2010–06
  9. By: Michael Artis (Swansea University, and CEPR); Toshihiro Okubo (Research Institute for Economics and Business Administration)
    Abstract: This paper studies the intranational business cycle – that is the set of regional (prefectural) business cycles – in Japan. One reason for choosing to examine the Japanese case is that long time series of relatively detailed data are available. A Hodrick-Prescott filter is applied to identify cycles in annual data from 1955 to 1995 and bilateral cross-correlations of prefectural GDPs are calculated for all pairs of prefectures, in our results we find fairly high cross-correlations. The paper then turns to an econometric explanation of the cross-correlation coefficients in the augmented gravity model framework. Two prefectures with similar GDPs and a shorter distance between them lead to business cycle synchronization whilst those with larger regional gaps in factor endowments (capital, labor and human capital) result in more idiosyncratic business cycle.
    Keywords: Intranational business cycle, Hodrick-Prescott filter, Optimal Currency Area, Gravity Model, Heckscher-Ohlin theorem
    JEL: E32 F41 R11
    Date: 2010–06
  10. By: DeVaro, Jed; Farnham, Martin
    Abstract: We study the effect of product market volatility on a firm’s choice between multiskilling and specialization. We construct a theoretical model that captures the tradeoff between multiskilling (which gives greater flexibility to reassign workers in production) and specialization (which provides workers with the expertise to respond to product market signals in their area of specialty). Using data from the 2004 WERS, a nationally-representative cross section of British establishments, we find that greater volatility is associated with greater specialization. This result holds both inside and outside of manufacturing, but consistent with our model, it holds only in multi-product establishments and not in single-product ones.
    Keywords: job design; training
    JEL: M53 J24
    Date: 2010–03–11
  11. By: Alexander Popov (European Central Bank, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Gregory F. Udell
    Abstract: We study the effect of financial distress in foreign parent banks on local SME financing in 14 central and eastern European countries during the early stages of the 2007-2008 financial crisis. We use survey data on applicant and non-applicant firms that enable us to disentangle effects driven by shocks to the banking system from recession-driven demand shocks that may vary across lenders. We find strong evidence that credit tightened in the relatively early stages of the crises caused by the following types of bank financial distress: 1) low equity ratio; 2) low Tier 1 capital ratio; and 3) losses on financial assets. We also find that foreign banks transmit to Main Street a larger portion of similar financial shocks than domestic banks. The observed decline in credit is greater among high-risk firms and firms with fewer tangible assets. JEL Classification: E44, E51, F34, G21.
    Keywords: credit crunch, financial crisis, bank lending channel, business lending.
    Date: 2010–06
  12. By: Kathuria, Vinish; Natarajan, Rajesh Raj; Sen, Kunal
    Abstract: This paper examines the role of the external institutional environment captured by effective state-business relations on firm performance. By effective state-business relations, we mean a set of highly institutionalized, responsive and public interactions between the state and the business sector. We find that effective state-business relations have had a discernible positive impact on firm performance in Indian formal manufacturing for the years 2000-01 and 2004-05. We also find internal and external institutional factors are complementary to firm performance - smaller firms, firms in urban areas, older firms and firms in simpler organizational forms benefit more.
    Keywords: State business relations; firm productivity; manufacturing sector; India
    JEL: L25 O43 O53
    Date: 2010–06–03

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