nep-bec New Economics Papers
on Business Economics
Issue of 2019‒08‒26
eight papers chosen by
Vasileios Bougioukos
Bangor University

  1. Pay, Employment, and Dynamics of Young Firms By Babina, Tania; Ma, Wenting; Moser, Christian; Ouimet, Paige; Zarutskie, Rebecca
  2. Building a Productive Workforce: The Role of Structured Management Practices By Christopher Cornwell; Ian M. Schmutte; Daniela Scur
  3. Corporate social responsibility and strategic trade policy: an endogenous timing game and its policy implications By Cho, Sumi; Lee, Sang-Ho; Hoang, Xoan
  4. Firm organization with multiple establishments By Antoni, Manfred; Gumpert, Anna; Steimer, Henrike
  5. Do Short-Term Incentives Affect Long-Term Productivity? By Almeida, Heitor; Ersahin, Nuri; Fos, Vyacheslav; Irani, Rustom M; Kronlund, Mathias
  6. Labour Markets, Trade and Technological Progress: A Meta-Study By Nikos Terzidis; Steven Brakman; Raquel Ortega-Argiles
  7. Risk Pooling, Leverage, and the Business Cycle By Pietro Dindo; Andrea Modena; Loriana Pelizzon
  8. Skill Gap, Mismatch, and the Dynamics of Italian Companies’ Productivity By Fanti, Lucrezia; Guarascio, Dario; Tubiana, Matteo

  1. By: Babina, Tania; Ma, Wenting; Moser, Christian; Ouimet, Paige; Zarutskie, Rebecca
    Abstract: Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth. We tie our empirical findings to a simple model of pay, employment, and dynamics of young firms.
    Keywords: Young-Firm Pay Premium, Selection, Worker and Firm Heterogeneity, Firm Dynamics, Startups
    JEL: D2 D22 E2 E24 J3 J30 J31 M1 M13
    Date: 2019
  2. By: Christopher Cornwell; Ian M. Schmutte; Daniela Scur
    Abstract: Firms' hiring and firing decisions affect the entire labor market. Managers often make these decisions, yet the effects of management on labor allocation remains largely unexplored. To study the relationship between a firm's management practices and how it recruits, retains and dismisses its employees, we link a survey of firm-level management practices to production and employee records from Brazil. We find that firms using structured management practices consistently hire and retain better workers, and fire more selectively. Good production workers match with firms using structured personnel management practices. By contrast, better managers match with firms using structured operations management practices.
    Keywords: labor allocation, managers, management practices, productivity
    JEL: D22 M11 J31
    Date: 2019–08
  3. By: Cho, Sumi; Lee, Sang-Ho; Hoang, Xoan
    Abstract: This study incorporates the corporate social responsibility (CSR) initiatives of a domestic firm and analyzes strategic trade policy toward a foreign firm in a different market structure. We show that the tariff rate under a foreign (domestic) firm’s leadership is lowest when the degree of CSR is large (small). We also show that the foreign firm’s leadership yields the highest welfare when the degree of CSR is intermediate, while the domestic firm’s leadership yields the highest welfare otherwise. In an endogenous-timing game, we show that a simultaneous-move outcome is the unique equilibrium when the degree of CSR is small; thus, it is never socially desirable. We also show that the domestic firm’s leadership can be an equilibrium, which results in the highest welfare when the degree of CSR is large. Finally, when the degree of CSR is large, collusive behaviors between the domestic and foreign firms can increase welfare.
    Keywords: corporate social responsibility; strategic trade policy; endogenous-timing game; simultaneous-move; sequential-move
    JEL: H21 L13 L31
    Date: 2019–08–01
  4. By: Antoni, Manfred; Gumpert, Anna; Steimer, Henrike
    Abstract: How do geographic frictions affect firm organization? We show theoretically and empirically that geographic frictions increase the use of middle managers in multi-establishment firms. In our model, we assume that a CEO's time is a resource in limited supply, shared across headquarters and establishments. Geographic frictions increase the costs of accessing the CEO. Hiring middle managers at one establishment substitutes for CEO time, which is reallocated across all establishments. Consequently, geographic frictions between the headquarters and one establishment affect the organization of all establishments of a firm. Our model is consistent with novel facts about multi-establishment firm organization that we document using administrative data from Germany. We exploit the opening of high-speed train routes to show that not only the establishments directly affected by faster travel times but also the other establishments of the firm adjust their organization. Our findings imply that local conditions propagate across space through firm organization.
    Keywords: firm organization; Geography; knowledge hierarchy; multi-establishment firm
    JEL: D21 D22 D24
    Date: 2019–07
  5. By: Almeida, Heitor; Ersahin, Nuri; Fos, Vyacheslav; Irani, Rustom M; Kronlund, Mathias
    Abstract: Previous research shows that stock repurchases that are caused by earnings management lead to reductions in firm-level investment and employment. It is natural to expect firms to cut less productive investment and employment first, which could lead to a positive effect on firm-level productivity. However, using Census data, we find that firms make cuts across the board irrespective of plant productivity. This pattern seems to be associated with frictions in the labor market. Specifically, we find evidence that unionization of the labor force may prevent firms from doing efficient downsizing, forcing them to engage in easy or expedient downsizing instead. As a result of this inefficient downsizing, EPS-driven repurchases lead to a reduction in long-term productivity.
    Keywords: employment; investment; Labor Unions; productivity; Share repurchases; Short-termism
    JEL: G32 G35 J23
    Date: 2019–07
  6. By: Nikos Terzidis; Steven Brakman; Raquel Ortega-Argiles
    Abstract: Technological progress and trade potentially affect wages and employment. Technological progress can make jobs obsolete and trade can increase unemployment in import competing sectors. Empirical evidence suggests that both causes are important to explain recent labour market developments in many OECD countries. Both causes are often mentioned in tandem, but the relative contribution of each cause is less clear. This study presents a meta-analysis to shed light on the relative contribution of technological progress and trade in recent labour market developments and allows us to identify the winners and losers of automation and globalization. Using a sample of 77 studies and 1158 estimates, we find that both effects are important. Automation is beneficial at the firm level, and is more likely to displace low-skilled employment. Trade is more likely to benefit high-skilled employment and affects industry negatively. Somewhat surprisingly, given the consensus in the literature, automation has a positive effect for estimates considering the period before 1995, and trade a negative effect. We also find some evidence of publication biases.
    Keywords: labour markets, technological progress, trade, meta-study
    JEL: F23 J31 J63 O11
    Date: 2019
  7. By: Pietro Dindo; Andrea Modena; Loriana Pelizzon
    Abstract: This paper investigates the interdependence between the risk-pooling activity of the financial sector and: output, consumption, risk-free rate, and Sharpe ratio in a dynamic general equilibrium model of a productive economy. Due to their exposure to idiosyncratic shocks and market segmentation, heterogeneous households/entrepreneurs (h/entrepreneurs) are willing to mitigate their risk through a financial sector. The financial sector pools risky claims issued by different firms within its assets, faces an associated intermediation cost and, via leverage, provides a risk-free asset to h/entrepreneurs. Exogenous systematic shocks change the relative size of the financial sector, and thus the equilibrium amount of pooled risk, making financial leverage state-dependent and counter-cyclical. We study how this mechanism endogenously channels amplification of consumption and mitigation of output fluctuations. In equilibrium, financial sector leverage also determines counter-cyclical Sharpe ratios and pro-cyclical risk-free interest rates. Last, we investigate the relationship between the size of the financial sector, leverage, and welfare. We show that limiting financial sector leverage determines a sub-optimal pooling of idiosyncratic risk but fosters the growth rate of the h/entrepreneurs’ consumption. On the other side, when the financial sector is too large, it destroys too many resources after intermediation costs. Therefore, the h/entrepreneurs benefit the most when the financial sector is neither too small nor too big.
    Keywords: amplification, business cycle, financial frictions, leverage, risk pooling
    JEL: E13 E32 E69 G12
    Date: 2019
  8. By: Fanti, Lucrezia; Guarascio, Dario; Tubiana, Matteo
    Abstract: Relying on a unique integrated database, this work explores the relationship between labour productivity, on one side; intensity and characteristics of companies’ skills need and degree of skill mismatch, on the other. The analysis focuses on a representative sample of Italian limited liability companies observed during the years 2012, 2014 and 2017. First, companies acknowledging the need to update their knowledge base display a higher productivity vis-à-vis other firms. Second, when it comes to the skill need distinguished by competence/knowledge domains (management, STEM, social and soft skills, technical operatives and humanities) it emerges that companies looking for technical operative and social skills show lower labour productivity as compared to other firms. On the contrary, companies characterized by a need in managerial, STEM or humanities-related skills show higher productivity. Third, the ability to match the skill need via new hiring is always positively correlated with firms’ productivity. This result is confirmed across all the adopted specifications.
    Keywords: labour productivity,skill mismatch,firm-level heterogeneity,knowledgebase,organizational capabilities
    JEL: D22 D80 J24
    Date: 2019

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