nep-bec New Economics Papers
on Business Economics
Issue of 2018‒01‒22
eight papers chosen by
Vasileios Bougioukos
Bangor University

  1. Aggregate hiring and the value of jobs along the business cycle By Yashiv, Eran
  2. Firm-Level Political Risk: Measurement and Effects By Tarek A. Hassan; Stephan Hollander; Laurence van Lent; Ahmed Tahoun
  3. Foreign Ownership and Intra-Firm Union Density in Germany By Jirjahn, Uwe
  4. The Employee Clientele of Corporate Leverage: Evidence from Personal Labor Income Diversification By Jie (Jack) He; Tao Shu; Huan Yang
  5. Firm Dynamics and Pricing under Customer Capital Accumulation By Pau Roldan; Sophia Gilbukh
  6. How Firms Grow By Yaniv Yedid-Levi; Stefanie Haller; Doireann Fitzgerald
  7. Does Federally-Funded Job Training Work? Nonexperimental Estimates of WIA Training Impacts Using Longitudinal Data on Workers and Firms By Fredrik Andersson; Harry J. Holzer; Julia I. Lane; David Rosenblum; Jeffrey Smith
  8. Pricing in a Frictional Product Market By Leena Rudanko

  1. By: Yashiv, Eran
    Abstract: U.S. CPS data indicate that in recessions firms actually increase their hiring rates from the pools of the unemployed and out of the labor force. Why so? The paper provides an explanation by studying the optimal recruiting behavior of the representative firm. The model combines labor frictions, of the search and matching type, with capital frictions, of the q-model type. Optimal firm behavior is a function of the value of jobs, i.e., the expected present value of the marginal worker to the firm. These are estimated to be counter-cyclical, the underlying reason being the dynamic behavior of the labor share of GDP. The counter-cyclicality of hiring rates and job values, which may appear counter-intuitive, is shown to be consistent with well-known business cycle facts. The analysis emphasizes the difference between current labor productivity and the wider, forwardlooking concept of job values. The paper explains the high volatility of firm recruiting behavior, as well as the reduction over time in labor market fluidity in the U.S., using the same estimated model. Part of the explanation has to do with job values and another part with the interaction of hiring and investment costs, both determinants having been typically overlooked.
    Keywords: counter-cyclical job values; business cycles; aggregate hiring; ; vacancies; labor market frictions; capital market frictions; volatility; labor market fluidity
    JEL: E24 E32
    Date: 2016–11–14
  2. By: Tarek A. Hassan; Stephan Hollander; Laurence van Lent; Ahmed Tahoun
    Abstract: We adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks. We validate our measure by showing that it correctly identifies calls containing extensive conversations on risks that are political in nature, that it varies intuitively over time and across sectors, and that it correlates with the firm's actions and stock market volatility in a manner that is highly indicative of political risk. Firms exposed to political risk retrench hiring and investment and actively lobby and donate to politicians. Interestingly, we find that the incidence of political risk across firms is far more heterogeneous and volatile than previously thought. The vast majority of the variation in our measure is at the firm-level rather than at the aggregate or sector-level, in the sense that it is neither captured by time fixed effects and the interaction of sector and time fixed effects, nor by heterogeneous exposure of individual firms to aggregate political risk. The dispersion of this firm-level political risk increases significantly at times with high aggregate political risk. Decomposing our measure of political risk by topic, we find that firms that devote more time to discussing risks associated with a given political topic tend to increase lobbying on that topic, but not on other topics, in the following quarter.
    JEL: D8 E22 E24 E32 E6 G18 G32 G38 H32
    Date: 2017–11
  3. By: Jirjahn, Uwe (University of Trier)
    Abstract: From a theoretical viewpoint the relationship between foreign ownership and unionization is ambiguous. On the one hand, foreign owners have better opportunities to undermine workers' unionization. On the other hand, workers of foreign-owned firms have an increased demand for the protection provided by unions. Which of the two opposing influences dominates can vary according to moderating circumstances. This study shows that firm size and industry-level bargaining play a moderating role. The relationship between foreign ownership and unionization is negative in larger firms whereas it is positive in smaller firms. Coverage by industry-level collective bargaining makes a positive relationship both stronger and more likely.
    Keywords: corporate globalization, foreign direct investment, union membership, firm size, centralized collective bargaining
    JEL: F23 J51 J52
    Date: 2017–11
  4. By: Jie (Jack) He; Tao Shu; Huan Yang
    Abstract: Using employee job-level data, we empirically test the equilibrium matching between a firm’s debt usage and its employee job risk aversion (“clientele effect”), as predicted by the existing theories. We measure job risk aversion for a firm’s employees using their labor income concentration in the firm, calculated as the fraction of the employees’ total personal labor income or total household labor income that is accounted for by their income from this particular firm. Using a sample of about 1,400 U.S. public firms from 1990-2008, we find a robust negative relation between leverage and employee job risk aversion, which is consistent with the clientele effect. Specifically, when a firm’s existing employees have higher labor income concentration in it, the firm tends to have lower contemporaneous and future leverage. Moreover, in terms of new hires, firms with lower leverage are more likely to recruit employees with less alternative labor income. Our results continue to hold after we control for firm fixed effects, other employee characteristics such as wages, gender, age, race, and education, and managerial risk attitudes. Further, the matching between a firm’s leverage and its workers’ labor income concentration in it is more pronounced for firms with higher labor intensity and those in financial distress.
    Keywords: clientele effect, personal labor income diversification, employee job risk aversion, leverage, capital structure, Longitudinal Employer-Household Dynamics database
    JEL: G30 G32 G39
    Date: 2018–01
  5. By: Pau Roldan (New York University); Sophia Gilbukh (NYU Stern)
    Abstract: What is the relationship between the rate at which firms accumulate their stock of demand over time and the prices that they set for their products? This paper analyzes the implications of cus- tomer capital accumulation for firms’ pricing behavior and firm dynamics. We build an analytically tractable directed search model of the product market in which firms are ex-post heterogeneous in their customer base and commit to the prices they post. The model features dynamic contracts with endogenous customer reallocation, endogenous entry and exit of firms, and allows for an exact characterization of the firm distribution. Price rigidity at the firm level emerges as an equilibrium outcome, and there is price dispersion in the cross-section because firms of different sizes use differ- ent pricing strategies to strike a balance between attracting new customers and retaining incumbent ones. We show that our mechanism can generate realistic firm dynamics, a right-skewed firm size distribution, and size- and age-dependent markups which are in line with the data.
    Date: 2017
  6. By: Yaniv Yedid-Levi (The University of British Columbia); Stefanie Haller (University College Dublin); Doireann Fitzgerald (Federal Reserve Bank of Minneapolis)
    Abstract: We document a new set of facts about firm dynamics, separating true dynamics from the appearance of dynamics driven by selection. Conditional on survival, total revenue and the number of markets a firm participates in grow with age. However TFP grows very slowly. Meanwhile, there is no statistically significant relationship between prices and age. We use these facts to motivate a model of firm dynamics, where firms differ in their efficiency, and face frictions in entering and expanding sales in markets. This allows us to address the following question: Do successful firms grow because they produce more efficiently, or because they sell more at a given level of efficiency?
    Date: 2017
  7. By: Fredrik Andersson; Harry J. Holzer; Julia I. Lane; David Rosenblum; Jeffrey Smith
    Abstract: We study the job training provided under the US Workforce Investment Act (WIA) to adults and dislocated workers in two states. Our substantive contributions center on impacts estimated non-experimentally using administrative data. These impacts compare WIA participants who do and do not receive training. In addition to the usual impacts on earnings and employment, we link our state data to the Longitudinal Employer-Household Dynamics (LEHD) data at the US Census Bureau, which allows us to estimate impacts on the characteristics of the firms at which participants find employment. We find moderate positive impacts on employment, earnings and desirable firm characteristics for adults, but not for dislocated workers. Our primary methodological contribution consists of assessing the value of the additional conditioning information provided by the LEHD relative to the data available in state Unemployment Insurance (UI) earnings records. We find that value to be zero.
    Keywords: job training, active labor market program, program evaluation, Workforce Investment Act, administrative data
    JEL: I38 J08 J24
    Date: 2018–01
  8. By: Leena Rudanko (Federal Reserve Bank of Philadelphia)
    Abstract: Recent research argues that a key factor limiting firm growth is the gradual accumulation of product market demand. Motivated by this evidence, this paper studies firm price setting and growth in a frictional product market where firms accumulate customers over time. In this competitive search model of firm growth, firms face a trade-off in setting prices each period, between making profits on existing customers with high prices, and attracting new customers with low prices. Firms with more existing customers choose higher prices, attract fewer new customers, and grow more slowly, than those with less. I show that if a new firm has full commitment to future prices, it can attain efficient growth through its lifetime. This plan is not time consistent, however: if a firm with existing customers reoptimizes, it will choose a higher price today than planned. I study firm pricing and growth when the firm does not have commitment to future prices, focusing on Markov perfect equilibria. The baseline model considers an industry with a single monopolistically competitive firm, but I also consider the impact of a competitive fringe on the monopolist’s pricing, a version with a continuum of firms within the industry that delivers an equilibrium theory of price dispersion, as well as the implications for firm responses to shocks to demand and costs.
    Date: 2017

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