nep-bec New Economics Papers
on Business Economics
Issue of 2010‒07‒03
eleven papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. On-the-job search and the cyclical dynamics of the labor market By Michael U. Krause; Thomas A. Lubik
  2. Exposure-Based Cash-Flow-at-Risk for Value-Creating Risk Management under Macroeconomic Uncertainty By Andrén, Niclas; Jankensgård, Håkan; Oxelheim, Lars
  3. How to Avoid Compensating CEO for Luck: The Case of Microeconomic Fluctuations By Oxelheim, Lars; Wihlborg, Clas; Zhang, Jianhua
  4. Shocks and Frictions under Right-to-Manage Wage Bargaining: A Transatlantic Perspective By Agostino Consolo; Matthias S. Hertweck
  5. Pricing executive stock options under employment shocks By Ángel León Valle; Antonio Vaello; Julio Carmona
  6. Estimating union wage effects and the probability of union membership in the U.K. during 1991-2003 By Georgios Marios Chrysanthou
  7. Realized Volatility Risk By David E. Allen; Michael McAleer; Marcel Scharth
  8. Management Matters By Michelle Alexopoulos; Trevor Tombe
  9. Crucial contributors? Re-examining labour market impact and workplace-training intensity in Canadian trades apprenticeship By Meredith, John
  10. Complementarities between Workplace Organisation and Human Resource Management: By Michael Beckmann; Dieter Kuhn
  11. Resolving the financial crisis: are we heeding the lessons from the Nordics? By Claudio Borio; Bent Vale; Goeth von Peter

  1. By: Michael U. Krause; Thomas A. Lubik
    Abstract: We develop a business cycle model with search and matching frictions in the labor market and show that on-the-job search generates substantial amplification and propagation. Rising search by employed workers in an expansion amplifies the incentives of firms to post vacancies. By keeping job creation costs low for firms, on-the-job search amplifies exogenous shocks. In our calibration, this allows the model to generate fluctuations of unemployment, vacancies, and job-to-job transitions whose magnitudes are close to the data, and leads output to be highly autocorrelated. On-the-job search implies higher-order serial correlation that is absent from the standard search and matching model.
    Keywords: Labor market
    Date: 2010
  2. By: Andrén, Niclas (Department of Business Administration); Jankensgård, Håkan (Department of Business Administration); Oxelheim, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: A strategically minded CFO will realize that strategic corporate risk management is about finding the right balance between risk prevention and proactive value generation. Efficient risk and performance management requires adequate assessment of risk and risk exposures on the one hand and performance on the other. Properly designed, a risk measure should provide information on to what extend the firm's performance is at risk, what is causing that risk, the relative importance of non-value-adding and value-adding risk, and the possibilities to use risk management to reduce total risk. In this chapter, we present an approach – exposure-based cash-flow-at-risk – to calculating a firm's downside risk conditional on the firm's exposure to non-value-adding macroeconomic and market risk and to analyzing corporate performance adjusted for the impact of non-value-adding risk.
    Keywords: Cash-flow-at risk; Value at risk; Risk management; Value creation; Total risk
    JEL: E32 G32 G33 G34 M21
    Date: 2010–06–21
  3. By: Oxelheim, Lars (Research Institute of Industrial Economics (IFN)); Wihlborg, Clas (Chapman University); Zhang, Jianhua (Göteborg University)
    Abstract: Incentive effects of performance-based compensation schemes for management may be weakened or biased by macroeconomic influences on remuneration. These influences can be seen as reflecting luck from the CEO’s perspective. In this chapter we present a model for how to avoid compensating CEO for luck by filtering out the macroeconomic influences. In the empirical section we analyze the impact of macroeconomic, industry and firm-specific factors on the compensations (salary, bonus, options, and pensions) of CEOs in 127 Swedish corporations during the period 2001-2007. We find macroeconomic influences on Swedish CEOs’ compensation to be substantial. Distinguishing between favorable and unfavorable macroeconomic developments, we find compensation to be more responsive to favorable than to unfavorable developments in macroeconomic variables.
    Keywords: Executive compensation; Salary; Bonus; Option; Pension; Macroeconomic uncertainty; Macroeconomic factors; Performance; Luck
    JEL: L14 L16 M14 M21 M52
    Date: 2010–06–21
  4. By: Agostino Consolo; Matthias S. Hertweck (University of Basel)
    Abstract: This paper introduces staggered right-to-manage wage bargaining into a New <br />Keynesian business cycle model. Our key result is that the model is able to gener- <br />ate persistent responses in output, inflation, and total labor input to both neutral <br />technology and monetary policy shocks. Furthermore, we compare the model’s dy- <br />namic behavior when calibrated to the US and to an European economy. We find <br />that the degree of price rigidity explains most of the differences in response to a <br />monetary policy shock. When the economy is hit by a neutral technology shock, <br />both price and wage rigidities turn out to be important. <br /><br />
    Keywords: Business Cycles, Labor Market Search, Wage Bargaining, Inflation
    JEL: E24 E31 E32 J64
    Date: 2010
  5. By: Ángel León Valle (Universidad de Alicante); Antonio Vaello (Universitat de les Illes Balears); Julio Carmona (Universidad de Alicante)
    Abstract: We obtain explicit expressions for the subjective, objective and market value of perpetual executive stock options (ESOs) under exogenous employment shocks driven by an independent Poisson process. Within this setup,we obtain the executive's optimal exercise policy which allows us to analyze the determinants of both, the subjective valuation by executives and the objective valuation by firms. The perpetual ESO is compared with the more realistic finite maturity ESO finding that the approximation is reasonably good. We also use the objective valuation's results for accounting purposes. Further,we analyze the objective valuation distribution when there is uncertainty about the employment shock parameter. Finally, the role of ESOs in the design of executive's incentives is also discussed.
    Keywords: ESO, Risk Aversion, Undiversification, Incentives, FAS 123R.
    JEL: G11 G13 G35 M52
    Date: 2009–09
  6. By: Georgios Marios Chrysanthou
    Abstract: Using a dynamic model of unionism and wage determination we find that the unobserved factors that influence union membership also affect wages. We observe a significant decline in trade union membership persistence during the period under analysis. We find that UK trade unions still play a nonnegligible, albeit diminishing, role in wage formation. While unions were unable to establish a wage premium for male members during the two periods considered, the female union wage effect stood at (19.4%, 17.6%) during (1991-1996, 1997-2002) respectively. The endogeneity correction procedure employed yields a discernible pattern of the union wage effect relative to OLS and fixed effects thus, refuting the pessimistic conclusions reached by Freeman and Medoff (1982) and Lewis (1986) that endogeneity correction methodologies do not contribute to our understanding of the union wage effect puzzle.
    Keywords: Union membership persistence, Union wage effects, Unobserved heterogeneity, Dynamic model of unionism and wage determination
    JEL: C31 C33 J31 J51
    Date: 2010–06
  7. By: David E. Allen; Michael McAleer (University of Canterbury); Marcel Scharth
    Abstract: In this paper we document that realized variation measures constructed from high- frequency returns reveal a large degree of volatility risk in stock and index returns, where we characterize volatility risk by the extent to which forecasting errors in realized volatility are substantive. Even though returns standardized by ex post quadratic variation measures are nearly gaussian, this unpredictability brings considerably more uncertainty to the empirically relevant ex ante distribution of returns. Carefully modeling this volatility risk is fundamental. We propose a dually asymmetric realized volatility (DARV) model, which incorporates the important fact that realized volatility series are systematically more volatile in high volatility periods. Returns in this framework display time varying volatility, skewness and kurtosis. We provide a detailed account of the empirical advantages of the model using data on the S&P 500 index and eight other indexes and stocks.
    Keywords: Realized volatility; volatility of volatility; volatility risk; value-at-risk; forecasting; conditional heteroskedasticity
    Date: 2010–05–01
  8. By: Michelle Alexopoulos; Trevor Tombe
    Abstract: New indications of managerial innovations are created and then used to show that changes in organizational technologies are an important source of economic growth. Specifically, the analysis demonstrates that, first, in response to a positive managerial technology shock, output, productivity and hours significantly increase in the short run, second, these types of innovations are as important as non-managerial ones in explaining movements in these variables at business cycle frequencies, and, third, product and process innovations promote the development of new managerial techniques.
    Keywords: Business Cycles; Productivity; Management techniques; Technical Change
    JEL: E3 M1 M5 O3 O4
    Date: 2010–06–21
  9. By: Meredith, John
    Abstract: Canadian apprenticeship policy has recently turned to direct subsidies for participants, including a federal tax incentive for employers. Some assumptions underlying the employer subsidy are: that apprenticeship training is a principal contributor to the skilled trades labour supply; that employers of apprentices typically incur high training cost and risks; and that in the absence of offsetting incentives, these would deter their participation. These assumptions are tested, using an analysis of 2006 census data and a series of 33 employer interviews. The census data reveal that, in 74 “skilled trades†occupations (NOC-S group H), the proportion of the labour force reporting an apprenticeship credential is 37%. When certificates granted to “trade qualifiers†are excluded from the total, registered apprenticeship certification is found to contribute roughly 25% of the skilled trades labour supply. A closer examination of the census data reveals strong inter-occupational differences in the certification rate and in the ratio of certified to less-than-certified workers, suggesting a de facto hierarchy of trades occupations. The interviews reveal sharp variations in employers’ workplace training efforts, challenging the twin suppositions that employers of apprentices are uniformly high contributors to skill formation, and that high training-related costs risks generally deter their participation. Differences in training behaviour are attributed to high-skill versus low-skill business strategies that in turn reflect differing product markets and regulatory constraints. Whatever the level of their training effort, all of the participating employers are able to minimize the training-related risks that have been cited as the principal rationale for employer subsidies. The paper argues for a more nuanced approach to skills policy and research in Canada, with greater attention to the diversity of actors’ strategic interactions with the training system.
    Keywords: Apprenticeship, Skill, Trades, Training, Labour Supply, Canada
    JEL: J21 J23 J24 L23 L88 Z13
    Date: 2010–06–22
  10. By: Michael Beckmann; Dieter Kuhn (University of Basel)
    Abstract: Owing to changes in the business environment, there has been a tremendous adoption of innovative<br />workplace organisation (WO) and human resource (HR) practices during the last few<br />decades. Assuming a holistic perspective on human resource management (HRM), the present<br />study establishes the hypothesis of mutually reinforcing WO and HR practices that, thus, constitute<br />a so-called high-performance work system. Precisely, it is argued that there may be a<br />complementary relationship between a more decentralised way of allocating tasks and decision<br />rights on the one hand and continuing training (or skilled labour), incentive pay or a more<br />intensive use of long-term, as opposed to temporary, employment on the other. This hypothesis<br />is examined empirically using latest nationally representative panel data of about 2,500<br />firms in Switzerland and applying econometric estimation techniques on the basis of an augmented<br />Cobb-Douglas production function. The estimation results show statistically significant<br />complementarities between the WO and HR practices mentioned above. In addition, socalled<br />innovative HRM systems of mutually reinforcing WO and HR practices increase firm<br />performance significantly. These results are robust to unobserved firm heterogeneity and to<br />the problem of reversed causality.
    Date: 2010
  11. By: Claudio Borio; Bent Vale; Goeth von Peter
    Abstract: How does the management and resolution of the current crisis compare with the response of the Nordic countries in the early 1990s, widely regarded as exemplary? We argue that, while intervention has been prompter, the measures taken so far remain less comprehensive and in-depth. In particular, the cleansing of balance sheets has proceeded more slowly, and less attention has been paid to reducing excess capacity and avoiding competitive distortions. In general, policymakers have given higher priority to sustaining aggregate demand in the short term than to encouraging adjustment in the financial sector and containing moral hazard. We argue that three factors largely explain this outcome: the more international nature of the crisis; the complexity of the instruments involved; and, hardly appreciated so far, the effect of accounting practices on the dynamics of the events, reflecting in particular the prominent role of fair value accounting (and mark to market losses) in relation to amortised cost accounting for loan books. There is a risk that the policies followed so far may delay the establishment of the basis for a sustainably profitable and less risk-prone financial sector.
    Keywords: Crisis management and resolution, principles for successful resolution, Nordic countries, fair value and amortised cost accounting, mark to market losses
    Date: 2010–06

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