nep-bec New Economics Papers
on Business Economics
Issue of 2010‒08‒28
eighteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Who Creates Jobs? Small vs. Large vs. Young By John Haltiwanger; Ron S. Jarmin; Javier Miranda
  2. Extensive vs. Intensive Margin in Germany and the United States: Any Differences? By Merkl, Christian; Wesselbaum, Dennis
  3. The Cyclical Volatility of Labor Markets under Frictional Financial Markets By Petrosky-Nadeau, Nicolas; Wasmer, Etienne
  4. Liquidity Transformation and Bank Capital Requirements By Hajime Tomura
  5. The Distribution of Earnings under Monopsonistic/polistic Competition By Thisse, Jacques-François; Toulemonde, Eric
  6. Worker and Firm Heterogeneity in Wage Growth: An AKM approach By Kenneth L. Sørensen; Rune M. Vejlin
  7. The Exporter Productivity Premium along the Productivity Distribution: First Evidence from a Quantile Regression Approach for Fixed Effects Panel Data Models By Powell, David; Wagner, Joachim
  8. Firm Training and Labour Demand in Belgium: Do Productivity Dominate Cost Effects? By Benoît Mahy; Mélanie Volral
  9. Uncertain Demand, Consumer Loss Aversion, and Flat-Rate Tariffs By Fabian Herweg
  10. Does diversification increase or decrease bank risk and performance? Evidence on diversification and the risk-return tradeoff in banking By Berger, Allen N.; Hasan, Iftekhar; Korhonen, Iikka; Zhou, Mingming
  11. Businesses, buddies and babies: social ties and fertility at work By Hensvik, Lena; Nilsson, Peter
  12. Conditional Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns By Chia-Lin Chang; Michael McAleer; Roengchai Tansuchat
  13. Firing Tax vs. Severance Payment - An Unequal Comparison By Dennis Wesselbaum
  14. Consumer Loss Aversion and the Intensity of Competition By Heiko Karle; Martin Peitz
  15. Des cartographies de connaissances pour un pilotage des ressources humaines et des processus RH By Kelly Sellin; Aurélie Dudezert
  16. Analyzing Entry Strategies in the Canadian Wireless Industry: The Case of the Discount Market By Sandy Mokbel
  17. What drives patent performance of German biotech firms? The impact of R&D subsidies, knowledge networks and their location By Dirk Fornahl; Tom Broekel; Ron Boschma
  18. Logistics Outsourcing: Change from a service-provider to a business partner and Leveraging partnership models to create sustainable bottomline By Wanchoo, Rajat

  1. By: John Haltiwanger; Ron S. Jarmin; Javier Miranda
    Abstract: There’s been a long, sometimes heated, debate on the role of firm size in employment growth. Despite skepticism in the academic community, the notion that growth is negatively related to firm size remains appealing to policymakers and small business advocates. The widespread and repeated claim from this community is that most new jobs are created by small businesses. Using data from the Census Bureau Business Dynamics Statistics and Longitudinal Business Database, we explore the many issues regarding the role of firm size and growth that have been at the core of this ongoing debate (such as the role of regression to the mean). We find that the relationship between firm size and employment growth is sensitive to these issues. However, our main finding is that once we control for firm age there is no systematic relationship between firm size and growth. Our findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation. In addition, we find an “up or out” dynamic of young firms. These findings imply that it is critical to control for and understand the role of firm age in explaining U.S. job creation.
    Date: 2010–08
  2. By: Merkl, Christian (University of Erlangen-Nuremberg); Wesselbaum, Dennis (Kiel Institute for the World Economy)
    Abstract: This paper analyzes the role of the extensive vis-à-vis the intensive margin of labor adjustment in Germany and in the United States. The contribution is twofold. First, we provide an update of older U.S. studies and confirm the view that the extensive margin (i.e., the adjustment in the number of workers) explains the largest part in the overall variability in aggregate hours. Second, although the German labor market structure is very different from its U.S. counterpart, the quantitative importance of the extensive margin is of similar magnitude.
    Keywords: business cycle, extensive and intensive margin, variance decomposition
    JEL: C10 E32 J21
    Date: 2010–08
  3. By: Petrosky-Nadeau, Nicolas (Carnegie Mellon University); Wasmer, Etienne (Sciences Po, Paris)
    Abstract: Financial frictions are known to raise the volatility of economies to shocks (e.g. Bernanke and Gertler 1989). We follow this line of research to the labor literature concerned by the volatility of labor market outcomes to productivity shocks initiated by Shimer (2005): in an economy with search on credit and labor markets, a financial multiplier raises the elasticity of labor market tightness to productivity shocks. This multiplier increases with total financial costs and is minimized under a credit market Hosios-Pissarides rule. Using a flexible calibration method based on small perturbations, we find the parameter values to match the US share of the financial sector. Those values are far away from Hosios and lead to a financial accelerator of about 3.6 (exogenous wages) to 4.5 (endogenous wages). Both match Shimer (2005)'s elasticity of labor market tightness to productivity shocks. Financial frictions are thus an alternative to the "small labor surplus" assumption in Hagedorn and Manovskii (2008): we keep the value of wages over productivity below 0.78. We conclude that financial frictions are a good candidate to solve the volatility puzzle and rejoin Pissarides (2009) in arguing that hiring costs must be partly non-proportional to congestion in the labor market, which is the case of financial costs.
    Keywords: search, financial imperfections, Shimer puzzle, macroeconomic volatility
    JEL: E44 J60
    Date: 2010–08
  4. By: Hajime Tomura
    Abstract: This paper presents a dynamic general equilibrium model where asymmetric information about asset quality leads to asset illiquidity. Banking arises endogenously in this environment as banks can pool illiquid assets to average out their idiosyncratic qualities and issue liquid liabilities backed by pooled assets whose total quality is public information. Moreover, the liquidity mismatch in banks' balance sheets leads to endogenous bank capital (outside equity) requirements for preventing bank runs. The model indicates that banking has both positive and negative effects on long-run economic growth and that business-cycle dynamics of asset prices, asset illiquidity and bank capital requirements are interconnected.
    Keywords: Financial stability; Financial system regulation and policies
    JEL: E44 G21 D82
    Date: 2010
  5. By: Thisse, Jacques-François (CORE, Université catholique de Louvain); Toulemonde, Eric (University of Namur)
    Abstract: Recent empirical contributions in labor economics suggest that individual firms face upward sloping labor supplies. We rationalize this by assuming that idiosyncratic non-pecuniary conditions interact with money wages in workers’ decisions to work for specific firms. Likewise, firms supply differentiated goods in response to differences in consumer tastes. Hence, firms are price-makers and wage-setters. By combining monopolistic and monopsonistic competition, our setting encapsulates general equilibrium. The equilibrium involves double exploitation of labor. Compared to the competitive outcome, the high-productive workers are overpaid under free entry, whereas the low-productive workers are underpaid. In the same vein, capital-owners receive a premium, whereas workers are exploited.
    Keywords: labor exploitation, monopolistic competition, monopsonistic competition, worker heterogeneity, wage dispersion
    JEL: D33 J31 J42 J71 L13
    Date: 2010–08
  6. By: Kenneth L. Sørensen; Rune M. Vejlin (School of Economics and Management, Aarhus University, Denmark)
    Abstract: This paper estimates a wage growth equation containing human capital variables known from the traditional Mincerian wage equation with year, worker and firm fixed effects included as well. The paper thus contributes further to the large empirical literature on unobserved heterogeneity following the work of Abowd, Kramarz, and Margolis (1999). Our main contribution is to extend the analysis from wage levels to wage growth. The specification enables us to estimate the individual specific and firm specific fixed effects and their degree of explanation on wage growth. The analysis is conducted using Danish longitudinal matched employer-employee data from 1980 to 2006. We find that the worker fixed effect dominates both the firm fixed effect and the effect of the observed covariates. Worker effects are estimated to explain seven to twelve per cent of the variance in wage growth while firm effects are estimated to explain four to ten per cent. We furthermore find a negative correlation between the worker and firm effects, as do nearly all authors examining wage level equations.
    Keywords: MEE data, fixed effects, wage growth
    JEL: J21 J31
    Date: 2010–08–27
  7. By: Powell, David (RAND); Wagner, Joachim (Leuphana University Lüneburg)
    Abstract: An emerging literature on international activities of heterogeneous firms documents that exporting firms are more productive than firms that only sell on the national market. This positive exporter productivity premium shows up in a large number of empirical studies after controlling for observed and unobserved firm characteristics in regression models including firm fixed effects. These studies test for a difference in productivity between exporters and non-exporters at the conditional mean of the productivity distribution. However, if firms are heterogeneous, it is possible that the size of the premium varies over the productivity distribution. In this paper we apply a newly developed estimator for fixed-effects quantile regression models to estimate the exporter productivity premium at quantiles of the productivity distribution for manufacturing enterprises in Germany, one of the leading actors in the world market for goods. We show that the premium decreases over the quantiles – a dimension of firm heterogeneity that cannot be detected through mean regression.
    Keywords: exporter productivity premium, quantile regression, fixed effects
    JEL: F14 C21 C23
    Date: 2010–08
  8. By: Benoît Mahy; Mélanie Volral
    Abstract: This paper models and estimates the impact of quantitative and qualitative training financed by the firm on labour demand in Belgium. It assumes profit maximising firms producing under a short run monopolistic competition regime, where training can increase labour demand through its positive net effect on labour productivity or decrease it through higher direct labour costs and wages. The estimation of our model on a panel of 17,812 firms over the period 1999-2007 allowing to control for the potential simultaneity between training and labour demand and for unobserved workplace characteristics reveals a small positive impact of training variables on labour demand. This suggests that productivity effects dominate cost effects.
    Keywords: Training; Labour Demand; Labour Productivity; Wage Determination
    JEL: M53 J23 J24 J30 C23
    Date: 2010–06–22
  9. By: Fabian Herweg (University of Bonn)
    Abstract: The so called flat-rate bias is a well documented phenomenon caused by consumers' desire to be insured against fluctuations in their billing amounts. This paper shows that expectation-based loss aversion provides a formal explanation for this bias. We solve for the optimal two-part tariff when contracting with loss-averse consumers who are uncertain about their demand. The optimal tariff is a flat rate if marginal cost of production is low compared to a consumer's degree of loss aversion and if there is enough variation in the consumer's demand. Moreover, if consumers differ with respect to the degree of loss aversion, firms' optimal menu of tariffs typically comprises a flat-rate contract.
    Keywords: Consumer Loss Aversion; Flat-Rate Tariffs; Nonlinear Pricing; Uncertain Demand
    JEL: D11 D43 L11
    Date: 2010–07
  10. By: Berger, Allen N. (BOFIT); Hasan, Iftekhar (BOFIT); Korhonen, Iikka (BOFIT); Zhou, Mingming (BOFIT)
    Abstract: Conventional wisdom in banking argues that diversification tends to reduce bank risk and improve performance, but the recent financial crisis suggests that aggressive diversification strategies may have resulted in increased risk taking and poor performance. This paper addresses this important question by evaluating the empirical relationship between diversification strategies and the risk-return tradeoff in banking. Our data set covers Russian banks during the 1999-2006 period and finds somewhat mixed results. Specifically, we find that banks’ performance tends to be non-monotonically related to their diversification strategy. The marginal effects of focus indices (inverse measures of diversification) on performance are nonlinearly associated with the level of risk and foreign ownership. A focused strategy is found to be associated with increased profit and decreased risk only up to a certain threshold. Additionally, when foreign ownership is either very high or very low, banks tend to benefit more from being diversified. This analysis provides important strategic and policy implications for bank managers and regulators in Russia as well as in other emerging economies.
    Keywords: banks; diversification; focus; Russia; foreign ownership; scope economies
    JEL: G21 G28 G34
    Date: 2010–06–21
  11. By: Hensvik, Lena (IFAU - Institute for Labour Market Policy Evaluation); Nilsson, Peter (Uppsala University)
    Abstract: We examine the influence that co-workers’ have on each other’s fertility decisions. Using linked employer employee panel data for Sweden we show that female individual fertility increases if a co-worker recently had a child. The timing of births among co-workers of the same sex, educational level and co workers who are close in age is even more influential. Consistent with models of social learning we find that the peer effect for first time mothers is similar irrespective of the birth order of the co-worker’s child, while for higher order births within-parity peer effects are strong but cross-parity peer effects are entirely absent. A causal interpretation of our estimates is strengthened by several falsification tests showing that neither unobserved common shocks at the workplace level, nor sorting of workers between workplaces are likely to explain the observed peer effect. We also provide evidence suggesting that peers not only affect timing of births but potentially also completed fertility, and that fertility peer influences spills over across multiple networks. Our results forward the understandings of how individual fertility timing decisions are made and suggest that social interactions could be an important factor behind the strong inter-temporal fluctuations in total fertility rates observed in many countries.
    Keywords: Peer effects; social preferences; co-workers
    JEL: J13
    Date: 2010–06–30
  12. By: Chia-Lin Chang (Department of Applied Economics, National Chung Hsing University); Michael McAleer (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, and Institute of Economic Research, Kyoto University); Roengchai Tansuchat (Faculty of Economics, Maejo University)
    Abstract: This paper investigates the conditional correlations and volatility spillovers between the crude oil and financial markets, based on crude oil returns and stock index returns. Daily returns from 2 January 1998 to 4 November 2009 of the crude oil spot, forward and futures prices from the WTI and Brent markets, and the FTSE100, NYSE, Dow Jones and S&P500 stock index returns, are analysed using the CCC model of Bollerslev (1990), VARMA- GARCH model of Ling and McAleer (2003), VARMA-AGARCH model of McAleer, Hoti and Chan (2008), and DCC model of Engle (2002). Based on the CCC model, the estimates of conditional correlations for returns across markets are very low, and some are not statistically significant, which means the conditional shocks are correlated only in the same market and not across markets. However, the DCC estimates of the conditional correlations are always significant. This result makes it clear that the assumption of constant conditional correlations is not supported empirically. Surprisingly, the empirical results from the VARMA-GARCH and VARMA-AGARCH models provide little evidence of volatility spillovers between the crude oil and financial markets. The evidence of asymmetric effects of negative and positive shocks of equal magnitude on the conditional variances suggests that VARMA-AGARCH is superior to VARMA-GARCH and CCC.
    Keywords: Multivariate GARCH, volatility spillovers, conditional correlations, crude oil prices, spot, forward and futures prices, stock indices.
    JEL: C22 C32 G32
    Date: 2010–08
  13. By: Dennis Wesselbaum
    Abstract: Empirical evidence indicates that lay-off costs consist of two elements, namely firing costs and severance payments. This paper investigates business cycle and steady state effects of firing costs and severance payments and discusses the differences. We find that severance payments imply a lower volatility of key labor market variables compared with firing costs. Persistently increasing those costs, reduces the welfare in the model economy but increases employment. The reason for the different performance is the impact on the wage and the additional stimulus caused by severance payments. The social planner therefore faces a trade-off in the design of employment protection. Furthermore, the design of lay-off costs also has strong implications for the design of other elements of employment protection
    Keywords: Firing Costs, Severance Payments, Welfare
    JEL: D61 E24 E32
    Date: 2010–08
  14. By: Heiko Karle (Université Libre de Bruxelles); Martin Peitz (University of Mannheim)
    Abstract: Consider a differentiated product market in which all consumers are fully informed about match value and price at the time they make their purchasing decision. Initially, consumers become informed about the prices of all products in the market but do not know the match values. Some consumers have reference-dependent utilities—i.e., they form a reference-point distribution with respect to match value and price that will make them realize gains or losses if their eventually chosen product performs better or, respectively, worse than their reference point in both dimensions. Loss aversion in the match-value dimension leads to a less competitive outcome, while loss aversion in the price dimension leads to a more competitive equilibrium than a market in which consumers are not subject to reference dependence. Depending on the weights consumers attach to the price and the match-value dimension, a market with loss-averse consumers may be more or less competitive than a market with consumers that do not have reference-dependent utilities. We also show that consumer loss aversion tends to lead to higher prices if the market accommodates a larger number of firms.
    Keywords: Loss Aversion, Reference-Dependent Utility, Behavioral Industrial Organization, Imperfect Competition, Product Differentiation
    JEL: D83 L13 L41 M37
    Date: 2010–05
  15. By: Kelly Sellin (LGI - Laboratoire Génie Industriel - Ecole Centrale Paris); Aurélie Dudezert (LGI - Laboratoire Génie Industriel - Ecole Centrale Paris)
    Abstract: La gestion des ressources humaines s'inscrit dans la stratégie des organisations, désireuses de se démarquer d'une concurrence forte et de développer un avantage concurrentiel durable, au travers des connaissances et compétences dont elles disposent. Or, les fonctions RH sont confrontées à une dichotomie court terme/long terme, répondant à la fois aux exigences de l'opérationnel et à une nécessaire gestion anticipée des hommes et de leurs compétences pour répondre aux besoins présents et futurs de l'organisation. Les cartographies de connaissances, parce qu'elles permettent l'identification et la représentation de champs de connaissances d'un individu ou d'un réseau d'individus, semblent pouvoir apporter une réponse à cette problématique en faisant le lien entre les RH, les métiers et l'organisation, logique de court terme et logique de long terme. À travers une étude menée chez Total, nous explorons l'impact potentiel de ces cartographies sur les processus RH, dans cette gestion à court et à long terme des ressources humaines.
    Keywords: Cartographies de connaissances; gestion des ressources humaines
    Date: 2010–04–14
  16. By: Sandy Mokbel
    Abstract: This study examines entry strategies in the Canadian wireless discount market. Analysis was mainly focused on the incumbents’ strategic choices when faced with the threat of sequential entry. The main model used is Fudenberg and Tirole’s taxonomy of business strategies that is studied in the context of multimarket contact and when entry deterrence might be considered as a public good. The core of the analysis is done with two interconnected two stage games. It is argued that Fido, Solo and Virgin adopted a Puppy Dog strategy to face Koodo’s entry, then might have aligned with their new competitor and switched to a Top Dog attitude when faced with the threat of a second round of market entries. <P>Cette étude examine les stratégies d’entrée sur le marché canadien des télécommunications sans-fil à escompte. L’analyse porte principalement sur les choix stratégiques des entreprises établies qui font face à des menaces d’entrée séquentielles sur le marché. Le modèle, essentiellement basé sur la taxonomie des stratégies de gestion de Fudenberg et Tirole, est étudié dans un contexte de firmes ayant des contacts sur plusieurs marchés et en supposant que la dissuasion à l’entrée pourrait avoir les mêmes caractéristiques qu’un bien public. L’analyse se base sur deux jeux à deux phases interconnectés. Ce modèle supposerait alors que Fido, Solo et Virgin auraient adopté la stratégie d’un Gentil Chiot en préparation à l’entrée de Koodo, et se seraient ensuite alignés avec leur nouveau concurrent en adoptant ce qui semblerait être une attitude de Chien Méchant lorsque soumis à des menaces d’une nouvelle vague d’entrées.
    Keywords: market strategy, game theory, telecommunications, industrial organization, stratégie de marché, théorie des jeux, télécommunications, organisation industrielle
    Date: 2010–08–01
  17. By: Dirk Fornahl; Tom Broekel; Ron Boschma
    Abstract: This paper aims to explain whether firm-specific features, their engagement in collaboration networks and their location influence patent activity of biotech firms in Germany in the period 1997-2004. First, we demonstrate that non-collaborative R&D subsidies do not increase patent intensity of biotech firms. Second, the number of knowledge links biotech firms is also not influencing their patent performance. However, strong and robust evidence is found that some but not too much cognitive distance between actors involved in R&D collaborations increases patent performance of firms. Third, being located in a biotech cluster does positively impact on patent performance.
    Keywords: relatedness, R&D subsidies, biotechnology, knowledge networks, proximity paradox
    JEL: O33 O38 R58
    Date: 2010–08
  18. By: Wanchoo, Rajat
    Abstract: A New model for „Partnership’ based Outsourcing: The growing emphasis on efficiency and integration between customers (shippers) and third-party outsourcing firms, has given rise to a unique collaborative model of Logistics outsourcing. Principle: “The focus on end-to-end supply chain effectiveness and optimization will lead to lower unit costs, which in turn will lead to lowest total costs”. Instead of an inward-looking focus on ownership of hard assets and „do-myself‟ approach; we need to focus on total supply chain effectiveness and process optimization by utilizing the extended value-proposition of the „logistics partner‟.
    Keywords: Rajat Wanchoo Logistic Outsourcing ISB Business Model
    JEL: M55 L22 A11 E20
    Date: 2010–01–10

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