nep-bec New Economics Papers
on Business Economics
Issue of 2020‒03‒23
sixteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Immigration and Worker-Firm Matching By Gianluca Orefice; Giovanni Peri
  2. Endogenous Productivity Dynamics in a Two-Sector Business Cycle Model By Fabio Massimo Piersanti; Patrizio Tirelli
  3. Productivity in Europe: Trends and drivers in a service-based economy By Peter Bauer; Igor Fedotenkov; Aurelien Genty; Issam Hallak; Peter Harasztosi; David Martinez Turegano; David Nguyen; Nadir Preziosi; Ana Rincon-Aznar; Miguel Sanchez Martinez
  4. International Trade, Differentiated Goods and Strategic Asymmetry By John Gilbert; Onur A. Koska; Reza Oladi
  5. Identifying Service Market Reform Priorities in Italy By Nazim Belhocine; Daniel Garcia-Macia
  6. Employment, hours and the welfare effects of intra-firm bargaining By Maarten Dossche; Vivien Lewis; Céline Poilly
  7. What Are the Labor and Product Market Effects of Automation? New Evidence from France By Philippe Aghion; Céline Antonin; Simon Bunel; Xavier Jaravel
  8. Do Financial Constraints Affect the Composition of Workers in a Firm? By Breunig, Robert; Hourani, Diana; Bakhtiari, Sasan; Magnani, Elisabetta
  9. How Integrated Are Corporate Bond and Stock Markets? By Mirela Sandulescu
  10. Natural Disasters, Firm Survival and Growth: Evidence from the Ise Bay Typhoon, Japan By Toshihiro Okubo; Eric Strobl
  11. Decomposing the large firm wage premium in Germany By Lochner, Benjamin; Seth, Stefan; Wolter, Stefanie
  12. Supply Chain Disruptions, Time to Build, and the Business Cycle By Matthias Meier
  13. The Thai Military As a Business Group, 1940-2016 By Naknoi, Kanda
  14. Between Firm Changes in Earnings Inequality: The Dominant Role of Industry Effects By John C. Haltiwanger; James R. Spletzer
  15. Secured Credit Spread By Efraim Benmelech; Nitish Kumar; Raghuram Rajan
  16. The Impact of Deunionization on the Growth and Dispersion of Productivity and Pay By Giovanni Dosi; Richard B. Freeman; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito

  1. By: Gianluca Orefice (University of Paris-Dauphine, CEPII and CESifo); Giovanni Peri (University of California, Davis and NBER)
    Abstract: The process of matching between firms and workers is an important mechanism in determining the distribution of wages. In a labor market characterised by large dispersion of workers' productivity and worker-firm complementarity, high quality firms have strong incentives to screen for the quality of workers. This process will increase the positive quality association of firm-worker matches known as positive assortative matching (PAM). Immigration in a local labor market, by increasing the variance of workers abilities, may drive stronger PAM between firms and workers. Using French matched employer-employee (DADS) data over the period 1995-2005 we document that positive supply-driven changes of immigrant workers in a district increased the strength of PAM. We then show that this association is consistent with causality, is quantitatively significant, and is associated with higher average productivity and firm profits, but also with higher wage dispersion. We also show that the increased degree of positive assortative matching is mainly reached by high-productive firms "losing" lower quality workers and "attracting" higher quality workers.
    Keywords: Matching, Workers, Firms, Immigration, Productivity.
    JEL: F16 J20 J61
    Date: 2020–03
  2. By: Fabio Massimo Piersanti; Patrizio Tirelli
    Abstract: We develop a stylized two-sector business cycle model with endogenous firm dynamics in the investment goods sector. The positive correlation between firms profitability and the relative price of investment goods generates an endogenous persistence mechanism in productivity dynamics which drives the model response to shocks. A white noise permanent shock to the productivity of new entrants causes endogenous exit and subsequent rounds of productivity increases, due to the competitive pressure generated by falling relative prices of investment goods. The model internal propagation mechanism generates persistent dynamics and a large "multiplier effect" on the initial shock. Neutral productivity shocks affect long run firms productivity in the Investment-goods sector through their effect on relative prices. Firms productivity is also endogenous to shocks to the marginal efficiency of investment. The DSGE version of the model apparently survives the Barro-King curse.
    Keywords: Productivity shocks, Investment shocks, relative price of investment, DSGE model, Firms entry, Firms exit
    JEL: E13 E21 E22 E30 E32
    Date: 2020–02
  3. By: Peter Bauer (European Commission - JRC); Igor Fedotenkov (European Commission - JRC); Aurelien Genty (European Commission - JRC); Issam Hallak (European Commission - JRC); Peter Harasztosi (European Commission - JRC); David Martinez Turegano (European Commission - JRC); David Nguyen (National Institute of Economic and Social Research); Nadir Preziosi (European Commission - JRC); Ana Rincon-Aznar (National Institute of Economic and Social Research); Miguel Sanchez Martinez (European Commission - JRC)
    Abstract: High levels of labour productivity growth are a key element to maintaining high standards of living in the long run in Europe. However, the EU has been experiencing a significant slowdown in labour productivity and total factor productivity growth, a phenomenon which has even exacerbated over the last decade, contrary to what would be expected in the recovery from the financial crisis. The trends and driving forces of the current sluggish productivity growth in Europe are analysed in this report with a special emphasis on services. After reviewing the literature in the field, the report zooms in on the role played by factors such as structural change, intangible investments, firm size distribution, firm demography, labour dynamics, zombie firms, business cycle dynamics and public expenditure and assesses their impact on productivity growth based on a variety of data sources and methodologies. The report focusses on the main results at EU level and includes some cross-country and cross-sectoral comparisons wherever possible.
    Keywords: productivity puzzle, structural change, intangible assets, public expenditure, business cycles, creative job destruction, firm entry, firm exit, firm size, zombie firms, Member States, service sectors
    Date: 2020–03
  4. By: John Gilbert; Onur A. Koska (University of Canterbury); Reza Oladi
    Abstract: We scrutinize international trade arising from oligopolistic rivalry (reciprocal dumping) in a model where the goods are horizontally differentiated and where otherwise symmetric firms located in different regions adopt asymmetric strategies – one competing in prices and the other competing in quantities. Uni-directional and intra-industry trade appear endogenously in our framework. We show that as trade costs decline the equilibrium outcome will transition from autarky through a region of uni-directional trade, before intra-industry trade ultimately arises. In the uni-directional trade region, potential market entry by the rival has an impact on firm behavior even though the rival is not exporting. The gains from trade are asymmetric in general, due to firms' asymmetric strategies, and sufficient product differentiation is required for trade to welfare dominate autarky especially with one of the trade partners adopting aggressive strategic behavior even when trade is costless.
    Keywords: Intra-industry trade, product differentiation, gains from trade, asymmetric strategies
    JEL: F01
    Date: 2020–03–01
  5. By: Nazim Belhocine; Daniel Garcia-Macia
    Abstract: Italy’s labor productivity in market services has declined since 2000, underperforming manufacturing and peer European countries, especially in strongly regulated sectors. A model of monopolistic competition is used to identify which service sectors would benefit more from removing entry and/or exit barriers. Using Italian firm-level data, the paper finds that sectors with high markups, such as professional services, would primarily benefit from removing entry barriers. Sectors with a large mass of unproductive firms, such as retail, would instead benefit from removing exit barriers. Policy recommendations to improve efficiency are outlined in relation to the sectoral priorities identified in the data.
    Date: 2020–02–21
  6. By: Maarten Dossche (ECB - European Central Bank - European Central Bank); Vivien Lewis (Research Centre, Deutsche Bundesbank - Deutsche Bundesbank); Céline Poilly (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Bilateral bargaining between a multiple-worker firm and individual employees leads to overhiring. With a concave production function, the firm can reduce the marginal product by hiring an additional worker, thereby reducing the bargaining wage paid to all existing employees. We show that this externality is amplified when firms can adjust hours per worker as well as employment. Firms keep down workers' wage demands by reducing the number of hours per worker and the resulting labor disutility. Our finding is particularly relevant for European economies where hours adjustment plays an important role.
    Keywords: Overhiring,Employment,Hours,Intrafirm bargaining
    Date: 2019–06
  7. By: Philippe Aghion (Collège de France and London School of Economics); Céline Antonin (Sciences Po-OFCE); Simon Bunel (INSEE and Paris School of Economics); Xavier Jaravel (London School of Economics)
    Abstract: We use comprehensive micro data in the French manufacturing sector between 1994 and 2015 to document the effects of automation technologies on employment, wages, prices and profits. Causal effects are estimated with event studies and a shift-share IV design leveraging pre-determined supply linkages and productivity shocks across foreign suppliers of industrial equipment. At all levels of analysis — plant, firm, and industry — the estimated impact of automation on employment is positive, even for unskilled industrial workers. We also find that automation leads to higher profits, lower consumer prices, and higher sales. The estimated elasticity of employment to automation is 0.28, compared with elasticities of 0.78 for profits, -0.05 for prices, and 0.37 for sales. Consistent with the importance of business-stealing across countries, the industry-level employment response to automation is positive and significant only in industries that face international competition. These estimates can be accounted for in a simple monopolistic competition model: firms that automate more increase their profits but pass through some of the productivity gains to consumers, inducing higher scale and higher employment. The results indicate that automation can increase labor demand and can generate productivity gains that are broadly shared across workers, consumers and firm owners. In a globalized world, attempts to curb domestic automation in order to protect domestic employment may be self-defeating due to foreign competition.
    Keywords: Automation, employment, plant-level, firm-level, labor market, product market, manufacturing, France.
    JEL: J23 J24 L11 O3
    Date: 2020–01
  8. By: Breunig, Robert (Australian National University); Hourani, Diana (Australian National University); Bakhtiari, Sasan (Department of Industry, Innovation and Science Australia); Magnani, Elisabetta (Macquarie University, Sydney)
    Abstract: We study the relationship between financing constraints and the work- force composition of firms that employ both casual and non-casual workers. We use data on Australian firms from 2009-2014 and a more direct measure of firm financial constraint than previous studies. We show that the proportion of casual workers in firms grew over the time period being analysed. This was the case regardless of whether a firm was financially constrained or not. However, the magnitude of this change differed between financially constrained and unconstrained firms. We find that of firms whose workforces were growing, financially constrained firms hired relatively fewer casual workers than financially unconstrained firms did. This is consistent with firms using internal financing to cope with a lack of access to credit and equity.
    Keywords: financial constraints, firm behaviour, employment patterns, casual work, Australia
    JEL: D22 L23 J29 J49
    Date: 2020–02
  9. By: Mirela Sandulescu (University of Lugano; Swiss Finance Institute)
    Abstract: In this paper, I study the degree of market integration between US corporate bonds and stocks of the corresponding issuing firms, accounting for their characteristics. I find that short-selling constraints are essential restrictions to optimal Sharpe ratio portfolios that yield admissible portfolio positions and implied pricing errors within quoted bid-ask spreads. My empirical evidence suggests that markets are more integrated for larger firms, with more liquid corporate bonds and stocks. Similarly, firms that are more leveraged, have a higher asset growth and profitability feature a greater extent of integration between their debt and equity securities.
    Keywords: stochastic discount factor, corporate bonds, stocks, market integration, firm characteristics
    JEL: G11 G12 G14
    Date: 2020–03
  10. By: Toshihiro Okubo (Faculty of Economics, Keio University); Eric Strobl (Department of Economics, Bern University)
    Abstract: This paper investigates the damage impact of the 1959 Ise Bay Typhoon-the most destructive storm in Japanese history-on firm performance in Nagoya City. To this end, we combine firm-level data with a locally derived damage index measured in terms of the duration of storm surge-induced flooding. We find heterogeneous impacts of flood damage across firms and sectors. More specifically, older manufacturing firms tend to survive and, conditional on survival, longer time inundation moderated their employment and sales growth, but also promoted capital growth, suggesting investment in new machinery and facilities. In contrast, employment growth increased in the construction sector to satisfy the construction demand for rebuilding after the supertyphoon.
    Keywords: Typhoon, Flood, Firm survival, Firm growth, Nagoya city
    JEL: Q54 R10 R12 R14 D22 L25
    Date: 2020–02–25
  11. By: Lochner, Benjamin; Seth, Stefan; Wolter, Stefanie
    Abstract: We use an extensive, matched employer-employee dataset to analyze the employersize wage relation and its contribution to wage inequality in Germany. Applying models with additive fixed effects for workers and establishments, we document that the large firm wage premium, which has risen over 25 years, has only recently started to decrease. Our estimates show that the recent decline is due to a decrease in the variation of establishment-specific wage premiums both across establishment size groups and within. This decline together with decreasing worker segregation at small firms account for an overall reversal in the trend of increasing wage dispersion.
    Keywords: firm size,wage inequality,wage premiums,fixed-effect wage models,firm andworker heterogeneity
    JEL: J00 J21 J31 J40
    Date: 2020
  12. By: Matthias Meier
    Abstract: We provide new evidence that (i) time to build is volatile and countercyclical, and that (ii) supply chain disruptions lengthen time to build. Motivated by these findings, we develop a general equilibrium model in which heterogeneous firms face non-convex adjustment costs and multi-period time to build. In the model, supply chain disruptions lengthen time to build. Calibrating the model to US micro data, we show that disruptions, which lengthen time to build by 1 month, depress GDP by 1% and aggregate TFP by 0.2%. Structural vector autoregressions corroborate the quantitative importance of supply chain disruptions.
    Keywords: Time to build, supply chain disruptions, business cycles
    JEL: E01 E22 E32
    Date: 2020–03
  13. By: Naknoi, Kanda
    Abstract: This study documents the historical development of business activities of the military in Thailand from 1940 to 2016, using a dataset of three types of producers of non-security services: military firms whose shareholders are military units, military enterprises within military units; and military-related firms whose shareholders or board of directors are individual military officers. The military-related firms existed in 1940, and more were established during the World War II. Military enterprises began after the war. Later, the military firm was first established after a successful military coup one decade after the war. Since then, the military firms have earned revenues and grew in financial services and media industries, but the military enterprises and military-related firms have operated in a much wider range of industries than the military firms. The formation of military firms and military enterprises as a business group are in line with the transaction costs view in the literature.
    Keywords: Business Group, Military, Thai Military Bank, Thailand
    JEL: G31 G32 L22
    Date: 2020–02
  14. By: John C. Haltiwanger; James R. Spletzer
    Abstract: We find that most of the rising between firm earnings inequality that dominates the overall increase in inequality in the U.S. is accounted for by industry effects. These industry effects stem from rising inter-industry earnings differentials and not from changing distribution of employment across industries. We also find the rising inter-industry earnings differentials are almost completely accounted for by occupation effects. These results link together the key findings from separate components of the recent literature: one focuses on firm effects and the other on occupation effects. The link via industry effects challenges conventional wisdom.
    JEL: E24 J24 J31 L22
    Date: 2020–02
  15. By: Efraim Benmelech; Nitish Kumar; Raghuram Rajan
    Abstract: Lenders are unwilling to accept lower credit spreads for secured debt relative to unsecured debt when a firm is healthy. However, they accept significantly lower credit spreads for secured debt when a firm’s credit quality deteriorates, the economy slows, or average credit spreads widen. This contingent valuation of collateral or security, coupled with the borrower perceiving a loss of operational and financial flexibility when issuing secured debt, may explain why firms issue secured debt on a contingent basis; they issue more when their credit quality deteriorates, the economy slows, and average credit spreads widen.
    JEL: E44 E51 G21 G23 G33
    Date: 2020–02
  16. By: Giovanni Dosi (Scuola Superiore Sant’Anna); Richard B. Freeman (Harvard University and NBER); Marcelo C. Pereira (University of Campinas and Scuola Superiore Sant’Anna); Andrea Roventini (Scuola Superiore Sant’Anna and OFCE, Sciences Po); Maria Enrica Virgillito (Scuola Superiore Sant’Anna)
    Abstract: This paper presents an Agent-Based Model (ABM) that seeks to explain the concordance of sluggish growth of productivity and of real wages found in macro-economic statistics, and the increased dispersion of firm productivity and worker earnings found in micro level statistics in advanced economies at the turn of the 21st century. It shows that a single market process unleashed by the decline of unionization can account for both the macro and micro economic phenomena, and that deunionization can be modeled as an endogenous outcome of competition between high wage firms seeking to raise productive capacity and low productivity firms seeking to cut wages. The model highlights the antipodal competitive dynamics between a “winner-takes-all economy” in which corporate strategies focused on cost reductions lead to divergence in productivity and wages and a “social market economy” in which competition rewards the accumulation of firm-level capabilities and worker skills with a more egalitarian wage structure.
    Keywords: Unionisation, productivity slowdown, market selection, reallocation, agent-based model
    JEL: J51 E02 E24 C63
    Date: 2020–02

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