nep-bec New Economics Papers
on Business Economics
Issue of 2011‒07‒02
fifteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. The Role of Profit Sharing in Dual Labour Markets with Flexible Outsourcing By Koskela, Erkki; König, Jan
  2. Oil Price Dynamics in a Real Business Cycle Model By Vipin Arora; Pedro Gomis-Porqueras
  3. Does Wage Dispersion Make All Firms Productive? By Mahy, Benoît; Rycx, Francois; Volral, Mélanie
  4. Team performance and the optimal spread of talent By Alex Bryson; Rafael Gomez; Kerry L. Papps
  5. Workforce Reorganization and the Worker By Kriechel, Ben; Pfann, Gerard A.
  6. Real Business Cycles with Capital Maintenance By Alice Albonico; Sarantis Kalyvitis; Evi Pappa
  7. A model of liquidity hoarding and term premia in inter-bank markets By Viral V. Acharya; David Skeie
  8. Side Effects of Competition: the Role of Advertising and Promotion in Pharmaceutical Markets By Guy David; Sara Markowitz
  9. Where is an oil shock? By Kristie M. Engemann; Michael T. Owyang; Howard J. Wall
  10. The More Business Owners the Merrier? The Role of Tertiary Education By Mirjam van Praag; Andre van Stel
  11. International Migration, Imperfect Information, and Brain Drain By Dequiedt, Vianney; Zenou, Yves
  12. The Emergence of Wage Discrimination in U.S. Manufacturing By Joyce Burnette
  13. Big ideas: How competition improves management and productivity By John Van Reenen
  14. Barriers to Entry, Deregulation and Workplace Training By Andrea Bassanini; Giorgio Brunello
  15. Composition of International Capital Flows: A Survey By Koralai Kirabaeva; Assaf Razin

  1. By: Koskela, Erkki (University of Helsinki); König, Jan (Free University of Berlin)
    Abstract: We combine profit sharing for high-skilled workers and outsourcing of low-skilled tasks in partly imperfect dual domestic labour markets, when the wage rate for low-skilled worker is set by a labor union, to analyze how the implementation of profit sharing influence flexible outsourcing and low-skilled labour market outcome. Profit sharing has a positive effect on the low-skilled wage and thus an outsourcing enhancing character. Profit sharing for high-skilled workers increases the low-skilled wage and helps to decrease the wage dispersion. Concerning the employment effects there is an employment reducing effect due to higher low-skilled wage, which can be offset by the employment increasing effect of higher effort of the high-skilled worker. Therefore, the employment effects of profit sharing are ambiguous.
    Keywords: flexible outsourcing, profit sharing, dual labour market, employee effort
    JEL: J31 J33 J51
    Date: 2011–06
  2. By: Vipin Arora; Pedro Gomis-Porqueras
    Abstract: We show the importance of endogenous oil prices and production in the real business cycle framework. Endogenising these variables improves the model’s predictions of business cycle statistics, oil related and non-oil related, relative to a situation where either is exogenous. This result is robust to the standard extensions (variable capacity utilisation and monopolistic competition) used in the literature. In particular, we first show that with either exogenous oil prices or production the standard real business cycle model and variants cannot match the oil-related and business cycle facts. In contrast, when both of these variables are endogenous, we can substantially improve the corresponding co-movements and slightly improve standard business cycle properties for consumption and investment.
    JEL: E37 F47 Q43
    Date: 2011–06
  3. By: Mahy, Benoît (University of Mons-Hainaut); Rycx, Francois (Free University of Brussels); Volral, Mélanie (University of Mons-Hainaut)
    Abstract: This article puts the relationship between wage dispersion and firm productivity to an updated test, taking advantage of access to detailed Belgian linked employer-employee panel data. Controlling for simultaneity issues, time-invariant workplace characteristics and dynamics in the adjustment process of productivity, empirical results reveal the existence of a positive impact from conditional intra-firm wage dispersion to firm productivity (measured by the average value added per hour worked), which however decreases for higher dispersion levels. Findings thus suggest that the incentive effect of wage dispersion, predicted for instance by the 'tournament' model, dominates 'fairness' and/or 'sabotage' considerations. Further results reveal that the influence of wage dispersion on firm productivity is stronger among firms with a larger proportion of highly skilled workers but does not depend on whether wages are collectively renegotiated at the firm level.
    Keywords: labour productivity, matched employer-employee panel data, personnel economics, wage dispersion
    JEL: J31 J24 M5
    Date: 2011–06
  4. By: Alex Bryson; Rafael Gomez; Kerry L. Papps
    Abstract: Alex Bryson and colleagues use US baseball data to investigate whether performance suffers if there is too wide a gap between the skills of a team's stars and the rest.
    Keywords: skill dispersion, baseball, firm performance
    JEL: L23 L25 L83 M51
    Date: 2011–06
  5. By: Kriechel, Ben (ROA, Maastricht University); Pfann, Gerard A. (Maastricht University)
    Abstract: In this paper we study the joint decision process of changing the structure of jobs and laying off individual workers in a firm that downsizes its workforce. A hierarchical decision model is proposed and estimated using personnel data from a firm in demise comparing the characteristics of the individual workers and the structure of the firm's labour force before and after its reorganization. Our results show that workers in jobs in the top levels of each skill group's hierarchy are better protected against downsizing due to larger productivity shocks and larger firing costs.
    Keywords: hierarchies, restructuring, control span, job displacement
    JEL: J63 J65 L23 L60 L93 M51
    Date: 2011–06
  6. By: Alice Albonico (Department of Economics and Quantitative Methods, University of Pavia); Sarantis Kalyvitis (Department of International and European Economic Studies, Athens University of Economics and Business); Evi Pappa (Departament de Economia y d’Historia Economica, Universitat Autonoma de Barcelona and CEPR)
    Abstract: We develop a stochastic general equilibrium model in which maintenance endogenously affects the capital depreciation rate. The model performs well in generating maintenance series that match closely existing survey-based measures for Canada. Maintenance is procyclical and comoves almost always with output. Investmentspecific shocks are the only disturbances that induce a negative correlation between output and maintenance. This feature is crucial for the identification of such shocks in the short run. We use Bayesian estimation to obtain the time profile of equipment capital depreciation in Canadian manufacturing. The depreciation rate has been quite volatile and procyclical over the last 50 years.
    Keywords: real business cycle, technology shocks, endogenous capital depreciation, maintenance
    JEL: E22 E32 E37
    Date: 2011–06
  7. By: Viral V. Acharya; David Skeie
    Abstract: Financial crises are associated with reduced volumes and extreme levels of rates for term inter-bank loans, reflected in the one-month and three-month Libor. We explain such stress by modeling leveraged banks’ precautionary demand for liquidity. Asset shocks impair a bank’s ability to roll over debt because of agency problems associated with high leverage. In turn, banks hoard liquidity and decrease term lending as their rollover risk increases over the term of the loan. High levels of short-term leverage and illiquidity of assets lead to low volumes and high rates for term borrowing. In extremis, inter-bank markets can completely freeze.
    Keywords: Interbank market ; Bank liquidity ; Financial leverage ; Risk management ; Debt ; Bank loans
    Date: 2011
  8. By: Guy David; Sara Markowitz
    Abstract: The extent of pharmaceutical advertising and promotion can be characterized by a balancing act between profitable demand expansions and potentially unfavorable subsequent regulatory actions. However, this balance also depends on the nature of competition (e.g. monopoly versus oligopoly). In this paper we model the firm’s behavior under different competitive scenarios and test the model’s predictions using a novel combination of sales, promotion, advertising, and adverse event reports data. We focus on the market for erectile dysfunction drugs as the basis for estimation. This market is ideal for analysis as it is characterized by an abrupt shift in structure, all drugs are branded, the drugs are associated with adverse health events, and have extensive advertising and promotion. We find that advertising and promotion expenditures increase own market share but also increase the share of adverse drug reactions. Competitors’ spending decreases market share, while also having an influence on adverse drug reactions.
    JEL: I0 K0 K2
    Date: 2011–06
  9. By: Kristie M. Engemann; Michael T. Owyang; Howard J. Wall
    Abstract: Much of the literature examining the effects of oil shocks asks the question “What is an oil shock?” and has concluded that oil-price increases are asymmetric in their effects on the US economy. That is, sharp increases in oil prices affect economic activity adversely, but sharp decreases in oil prices have no effect. We reconsider the directional symmetry of oil-price shocks by addressing the question Where is an oil shock? , the answer to which reveals a great deal of spatial/directional asymmetry across states. Although most states have typical responses to oil-price shocks—they are affected by positive shocks only—the rest experience either negative shocks only (5 states), both positive and negative shocks (5 states), or neither shock (5 states).
    Keywords: Petroleum industry and trade ; Power resources - Prices
    Date: 2011
  10. By: Mirjam van Praag (University of Amsterdam); Andre van Stel (EIM Business and Policy Research, Zoetermeer)
    Abstract: Policy in developed countries is often based on the assumption that higher business ownership rates induce economic value. Recent microeconomic empirical evidence casts doubts on the validity of this assumption or, at least, leads to a more nuanced view: Especially the top performing business owners are responsible for the value creation of business owners. Other labor market participants would contribute more to economic value creation as an employee than a business owner. The implied existence of an 'optimal' business ownership rate would thus replace the dictum of 'the more business owners, the merrier'. We attempt to establish whether there is such an optimal level, while investigating the role of tertiary education. Two findings stand out. First, by estimating extended versions of traditional Cobb Douglas production functions on a sample of 19 OECD countries over the period 1981-2006, we find indeed robust evidence of an optimal business ownership rate (at around 12.5%, on average). Second, the relation between business ownership and macroeconomic productivity is steeper for countries with higher participation rates in tertiary education. Thus, the optimal business ownership rate tends to decrease with tertiary education levels. This is consistent with microeconomic theory and evidence showing that entrepreneurs with superior levels of human capital run larger firms.
    Keywords: entrepreneurship; business ownership; human capital; (returns to) education; cross-country comparison; production function
    JEL: E23 J24 L26 O40 O57
    Date: 2011–04–15
  11. By: Dequiedt, Vianney (CERDI, University of Auvergne); Zenou, Yves (Stockholm University)
    Abstract: We consider a model of international migration where skills of workers are imperfectly observed by firms in the host country and where information asymmetries are more severe for immigrants than for natives. There are two stages. In the first one, workers in the South decide whether to move and pay the migration costs. These costs are assumed to be sunk. In the second stage, firms offer wages to the immigrant and native workers who are in the country. Because of imperfect information, firms statistically discriminate high-skilled migrants by paying them at their expected productivity. The decision of whether to migrate or not depends on the proportion of high-skilled workers among the migrants. The migration game exhibits strategic complementarities, which, because of standard coordination problems, lead to multiple equilibria. We characterize them and examine how international migration affects the income of individuals in sending and receiving countries, and of migrants themselves. We also analyze under which conditions there is positive or negative self-selection of migrants.
    Keywords: asymmetric information, screening, self-selection of migrants, skill-biased migration, wage differentials
    JEL: D82 J61 F22 O12
    Date: 2011–06
  12. By: Joyce Burnette
    Abstract: This paper examines the hypothesis that wage discrimination emerged at the beginning of the twentieth century. I test for wage discrimination by estimating the female-male productivity ratio from samples of manufacturing firms in the northeast, and then comparing the estimated productivity ratio to the wage ratio. I find that women did not face wage discrimination in manufacturing during the nineteenth century. In 1900 there was wage discrimination against women in white-collar jobs, but not in blue-collar jobs. Wage discrimination persisted, and in 2002 the female-male wage ratio was less than the productivity ratio.
    Date: 2011–06
  13. By: John Van Reenen
    Abstract: John Van Reenen sketches the evolution of CEP research on the drivers of productivity growth - and its impact on policies to foster competition.
    Keywords: management, productivity, organization
    JEL: L2 M2 O32 O33
    Date: 2011–06
  14. By: Andrea Bassanini (OECD); Giorgio Brunello (University of Padova)
    Abstract: We study the impact of regulatory barriers to entry on workplace training. We develop a model of training in imperfectly competitive product and labour markets. The model indicates that there are two contrasting effects of deregulation on training. As stressed in the literature, with a given number of firms, deregulation reduces the size of rents per unit of output that firms can reap by training their employees. Yet, the number of firms increases following deregulation, thereby raising output and profit gains from training and improving investment incentives. The latter effect prevails. In line with the predictions of the theoretical model, we find that the substantial deregulation in the 1990s of heavily regulated European industries (energy, transport and communication) increased training incidence.
    Keywords: training, product market competition, regulatory reform, Europe.
    JEL: J24 L11 O43
    Date: 2011–06
  15. By: Koralai Kirabaeva (Bank of Canada); Assaf Razin (Cornell University and Hong Kong Institute for Monetary Research)
    Abstract: We survey several mechanisms that explain the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). We focus on information frictions such as adverse selection and moral hazard, and exposure to liquidity shocks, and discuss the following implications for composition of capital flows: (1) home-court information advantage; (2) panic-based capital-flow reversals; (3) information-liquidity trade-off in the presence of source and host country liquidity shocks; (4) moral hazard in international debt contracts; and (5) risk sharing role of domestic bonds in the presence of home bias in goods and equities.
    Date: 2011–05

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