nep-bec New Economics Papers
on Business Economics
Issue of 2017‒08‒27
ten papers chosen by
Vasileios Bougioukos
Bangor University

  1. Who Moves Up the Job Ladder? By John Haltiwanger; Henry Hyatt; Erika McEntarfer
  2. Recent Changes in British Wage Inequality: Evidence from Firms and Occupations By Carl Singleton; Daniel Schaefer
  3. The Impact of Firm Size on Dynamic Incentives and Investment By Chi, Chang Koo; Choi, Kyoung Jin
  4. Business cycles, innovation and growth: welfare analysis By Marcin Bielecki
  5. Oligopoly in International Trade: Rise, Fall and Resurgence By Keith Head; Barbara J. Spencer
  6. Enforceability of non-complete agreements : When does state stifle productivity? By Anand, Smriti; Hasan, Iftekhar; Sharma, Priyanka; Wang, Haizhi
  7. Cascading Innovation By Mirko Draca; Vasco Carvalho
  8. How do Tax Incentives A ect Investment and Productivity? Firm-Level Evidence from China By Yongzheng Liu; Jie Mao
  9. On the Relationship Between Quality and Productivity: Evidence from China's Accession to the WTO By Haichao Fan; Yao Amber Li; Stephen R. Yeaple
  10. Employment in family firms: Less but safe? Analyzing labor demand of German family firms with a treatment model for panel data By Kölling, Arnd

  1. By: John Haltiwanger; Henry Hyatt; Erika McEntarfer
    Abstract: In this paper, we use linked employer-employee data to study the reallocation of heterogeneous workers between heterogeneous firms. We build on recent evidence of a cyclical job ladder that reallocates workers from low productivity to high productivity firms through job-to-job moves. In this paper we turn to the question of who moves up this job ladder, and the implications for worker sorting across firms. Not surprisingly, we find that job-to-job moves reallocate younger workers disproportionately from less productive to more productive firms. More surprisingly, especially in the context of the recent literature on assortative matching with on-the-job search, we find that job-to-job moves disproportionately reallocate less-educated workers up the job ladder. This finding holds even though we find that more educated workers are more likely to work with more productive firms. We find that while more educated workers are less likely to match to low productivity firms, they are even less likely to separate from them, with less educated workers both more likely to separate to a better employer in expansions and to be shaken off the ladder (separate to nonemployment) in contractions. Our findings underscore the cyclical role job-to-job moves play in matching workers to higher productivity and better paying employers.
    JEL: E24 E32 J63
    Date: 2017–08
  2. By: Carl Singleton (University of Edinburgh); Daniel Schaefer (University of Edinburgh)
    Abstract: Using a dataset covering a large sample of employees and their mostly very large employers, we study the dynamics of British wage inequality over the past two decades. Contrary to other studies, we find little evidence that recent increases in inequality have been driven by differences in the average wages paid by firms. Instead greater dispersion within firms can account for the majority of changes to the wage distribution. After controlling for the changing occupational content of employee wages, the role of average firm residual differences is approximately zero; the modestly increasing trend in between-firm wage inequality is explained by a combination of changes in between-occupation inequality and the occupational specialisation of firms. It is possible that previous studies, which assign some of the importance of changes in the between-firm component to industry, have misrepresented a significant role for occupations. These results are robust across measures of hourly, weekly and annual wages.
    Date: 2017
  3. By: Chi, Chang Koo; Choi, Kyoung Jin
    Abstract: Recent studies conclude that small firms have higher but more variable growth rates than large firms. To explore how this empirical regularity affects moral hazard and investment, we develop an agency model with a firm size process having two features: the drift is controlled by the agent's effort and the principal's investment decision, and the volatility is proportional to the square root of size. The firm improves on production efficiency as it grows, and wages are back-loaded when size is small but front-loaded when it is large. Furthermore, there is underinvestment in a small firm but overinvestment in a large firm.
    Keywords: Time-Varying Firm Size, Size-Dependence Regularity, Firm Size Effect, Dynamic Moral Hazard, Investment
    JEL: D82 D86 D92
    Date: 2016–05–20
  4. By: Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw)
    Abstract: Endogenous growth literature treats deliberate R&D effort as the main engine of long-run growth. It has been already recognized that R&D expenditures are procyclical. This paper builds a microfounded model that generates procyclical aggregate R&D investment as a result of optimizing behavior by heterogeneous monopolistically competitive firms. I find that business cycle fluctuations affect the aggregate endogenous growth rate of the economy so that transitory shocks leave lasting level effects on the economy’s Balanced Growth Path. This result stems from both procyclical R&D expenditures of the incumbents and procyclical firm entry rates. This mechanism generates economically significant hysteresis effects, increasing the welfare cost of business cycles by two orders of magnitude relative to the exogenous growth model. Coupled with potential to affect endogenous growth rates, ample space for welfare improving policy interventions arises. The paper evaluates the effects of selected subsidy schemes and finds some of them welfare improving.
    Keywords: business cycles, firm dynamics, innovation, growth, welfare analysis
    JEL: E32 E37 L11 O31 O32 O38 O40
    Date: 2017
  5. By: Keith Head; Barbara J. Spencer
    Abstract: Large firms played a central role in the “new trade” models that became a major focus of trade economists in the early 1980s. Subsequent literature for the most part kept imperfect competition but jettisoned oligopoly. Instead, as the heterogeneous firms literature burgeoned in the 2000s, monopolistic competition quickly became established as the workhorse model. The use of oligopoly in trade models has been criticized for reasons that we argue are unpersuasive. Renewed incorporation of oligopolistic firms in international trade is warranted. Quantitative investigations of welfare effects of trade policy should again address the impact of such policies on the allocation of profits across countries.
    JEL: F12 F13 F14 L13
    Date: 2017–08
  6. By: Anand, Smriti; Hasan, Iftekhar; Sharma, Priyanka; Wang, Haizhi
    Abstract: Non-compete agreements (also known as Covenants Not to Compete or CNCs) are frequently used by many businesses in an attempt to maintain their competitive advantage by safeguarding their human capital and the associated business secrets. Although the choice of whether to include CNCs in employment contracts is made by firms, the real extent of their restrictiveness is determined by the state laws. In this paper, we explore the effect of state level CNC enforceability on firm productivity. We assert that an increase in state level CNC enforceability is detrimental to firm productivity, and this relationship becomes stronger as comparable job opportunities become more concentrated in a firm’s home state. On the other hand, this negative relationship is weakened as employee compensation tends to become more long-term oriented. Results based on hierarchical linear modeling analysis of 21,134 firm-year observations for 3,027 unique firms supported all three hypotheses.
    JEL: J61 K2 O31
    Date: 2017–08–16
  7. By: Mirko Draca (University of Warwick); Vasco Carvalho (U of Cambridge)
    Abstract: US government spending since World War II has been characterized by large investments in defense related high-tech goods and services and R&D. In turn, this means that the Department of Defense (DoD) has had a large role in funding corporate innovation in the US. This paper (i) quantifies the impact of military procurement spending on corporate innovation by publicly listed firms and (ii) shows that DoD impact on innovation was not limited to the winners of defense contracts but instead cascaded through the supply chain of DoD contractors via indirect market size effects, working through firm-to-firm input linkages. We use a database of detailed, historical procurement contracts for all Department of Defense (DoD) prime contracts since 1966. Product-level spending shifts are used as a source of exogenous variation in firm-level procurement receipts. We combine this data with information on the supply chain linkages of publicly listed firms. Our estimates indicate that defense procurement has a positive direct impact on patenting and R&D investment, with an elasticity of approximately 0.07 across both measures of innovation for DoD contractors. Further, our estimates imply that the derived demand for inputs following the award of a DoD contract constitutes a large indirect market size effect for the suppliers of DoD contractors. These indirect market size effects in turn induce innovation cascades working up the supply chain. We find that the elasticity of innovation outcomes to indirect DoD market size shocks is about half of that estimated for direct contractors but affects a much larger number of firms, roughly doubling the effect of defense spending on aggregate innovation.
    Date: 2017
  8. By: Yongzheng Liu (School of Finance, Renmin University of China); Jie Mao (Department of Public Finance and Taxation, School of International Trade and Economics, University of International Business and Economics)
    Abstract: China initiated a critical value-added tax reform in 2004. Completed in 2009, it introduced permanent tax credit for firms' investment in fixed assets. We use a quasi-experimental design and a unique firm-level dataset covering all sizes of firms across a broad range of sectors and regions between 2005 and 2012, to test whether the reform promoted firms' investment and productivity. We estimate that on average, the reform raised investment and productivity of the treated firms relative to the control firms by 8.8 percent and 3.7 percent, respectively. We also show that the positive effects tend to be strengthened for firms with financial constraints.
    Date: 2017–08
  9. By: Haichao Fan; Yao Amber Li; Stephen R. Yeaple
    Abstract: This paper presents an analysis of the effect of China's entry into the WTO on the quality choices of Chinese exporters in terms of their outputs and their inputs. Using highly disaggregated firm-level data, we show that the quality upgrading made possible by China's tariff reductions was concentrated in the least productive Chinese exporters. These firms, which had been laggards in terms of quality prior to the tariff reduction, were the most aggressive in increasing the quality of their exports and their inputs and in redirecting their exports toward high income markets where demand for high quality goods is strong. Our empirical results are consistent with a simple model featuring scale effect and non-Hicks' neutral productivity that disproportionately affects the efficiency with which firms use intermediate inputs. This latter feature does not appear in workhorse models of firm heterogeneity and endogenous quality choice which provide a distorted view of the impact of trade liberalization on quality upgrading.
    JEL: F1 F10 F14 O3
    Date: 2017–08
  10. By: Kölling, Arnd
    Abstract: This paper analyzes the differences in labor demand and labor turnover between family and nonfamily firms. The majority of firms in modern economies and, therefore, also in Germany are family controlled. These firms seem to have better employment performance than non-family controlled companies. Therefore, this study applies a treatment model for panel data using family firms as a treatment indicator. Moreover, a propensity score estimation is introduced to the model to control for selectivity. The results of the estimations indicate that labor demand is possibly larger because of family members joining the firms as extra employees. Moreover, labor turnover is lower, thus supporting the assumption that family firms offer some kind of implicit contracts to their employees and are more loss averse than other establishments. However, evidence of these results for establishments with 20 or more employees is generally weaker, indicating that the differences between both types of firms decrease with firm size.
    Keywords: Labor Demand,Family Firms,Firm Size,Treatment Model,Panel Data
    JEL: J23 D22 G32 C21 C23
    Date: 2017

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