nep-bec New Economics Papers
on Business Economics
Issue of 2021‒10‒04
seven papers chosen by
Vasileios Bougioukos
London South Bank University

  1. The struggle of small firms to retain high-skill workers: Job duration and importance of knowledge intensity By Hugo Castro-Silva; Francisco Lima
  2. Sorting with Team Formation By Job Boerma; Aleh Tsyvinski; Alexander P. Zimin
  3. Some Efficiency Aspects of Monopolistic Competition: Innovation, Variety and Transaction costs By Todorova, Tamara
  4. Price Discrimination in the Transport Industry and the Gains from Trade By Zheng, Han
  5. Inward FDI, outward FDI, and firm-level performance in India By Koray Aktas; Valeria Gattai
  6. Are online platforms killing the offline star? Platform diffusion and the productivity of traditional firms By Hélia Costa; Giuseppe Nicoletti; Mauro Pisu; Christina von Rueden
  7. Making digital transformation work for all in Chile By Paula Garda

  1. By: Hugo Castro-Silva (Universidade de Lisboa); Francisco Lima (Universidade de Lisboa)
    Abstract: In the knowledge economy, skilled workers play an important role in innovation and economic growth. However, small firms may not be able to keep these workers. We study how the knowledge-skill complementarity relates to job duration in small and large firms, using a Portuguese linked employer-employee data set. We select workers displaced by firm closure and estimate a discrete-time hazard model with unobserved heterogeneity on the subsequent job relationship. To account for the initial sorting of displaced workers to firms, we introduce weights in the model according to the individual propensity of employment in a small firm. Our results show a lower premium on skills in terms of job duration for small firms. Furthermore, we find evidence of a strong knowledge-skill complementarity in large firms, where the accumulation of firm-specific human capital also plays a more important role in determining the hazard of job separation. For small firms, the complementarity does not translate into longer job duration, even for those with pay policies above the market. Overall, small knowledge-intensive firms struggle to retain high skill workers and find it harder to leverage the knowledge-skill complementarity.
    Keywords: knowledge intensity, technology, firm size, small firms, job duration, skills
    JEL: A1
    Date: 2021
  2. By: Job Boerma; Aleh Tsyvinski; Alexander P. Zimin
    Abstract: We fully solve an assignment problem with heterogeneous firms and multiple heterogeneous workers whose skills are imperfect substitutes, that is, when production is submodular. We show that sorting is neither positive nor negative and is characterized sufficiently by two regions. In the first region, mediocre firms sort with mediocre workers and coworkers such that output losses are equal across all these pairings (complete mixing). In the second region, high skill workers sort with a low skill coworker and a high productivity firm, while high productivity firms employ a low skill worker and a high skill coworker (pairwise countermonotonicity). The equilibrium assignment is also necessarily characterized by product countermonotonicity, meaning that sorting is negative for each dimension of heterogeneity with the product of heterogeneity in the other dimensions. The equilibrium assignment as well as wages and firm values are completely characterized in closed form. We illustrate our theory with an application to show that our model is consistent with the observed dispersion of earnings within and across U.S. firms. Our counterfactual analysis gives evidence that the change in the firm project distribution between 1981 and 2013 has a larger effect on the observed change in earnings dispersion than the change in the worker skill distribution.
    JEL: E0 J0
    Date: 2021–09
  3. By: Todorova, Tamara
    Abstract: We stress some efficiency aspects of monopolistic competition justifying it on account of its tendency to innovate and the questionable excess capacity paradigm. Some further efficiency aspects revealed are product variety and transaction cost savings. We view the monopolistically competitive firm as an essential source of technological innovation, product variety and cost economies. While perfect competition is universally considered a benchmark and a social optimum, we consider it a strongly unrealistic theoretical setup where the monopolistically, rather than the perfectly, competitive firm turns out to be the true type of competition and social optimum in the real world of positive transaction costs. The monopolistically competitive firm not only offers product variety and innovation but is the optimal institutional arrangement under positive transaction costs.
    Keywords: efficiency; innovation; variety; monopolistic competition; perfect competition; transaction costs
    JEL: D23 D24 D43 L13 O3
    Date: 2021
  4. By: Zheng, Han
    Abstract: This paper shows that the shipping industry could hamper the endogenous firm selection into production which is conducive to the overall productivity enhancement and welfare gains, through its discriminatory price. Naturally, if the shipping industry charges a higher transport price to the more productive manufacturing firms, sabotaging their competitive edges, those productive firms would not be capable of expanding as well as they otherwise would do under uniform transport fees, leaving enough space for the less productive firms to survive. Therefore, the effect from another source of gains from trade, firm selection is dampened. Elimination of this discriminatory practice could potentially increase the gains from trade.
    Keywords: Price discrimination, Shipping industry, Heterogeneous firms, The gains from trade
    JEL: F12 L91 R13 R41
    Date: 2021–09
  5. By: Koray Aktas; Valeria Gattai
    Abstract: In recent years, India has emerged as a leading foreign direct investment (FDI) player, featuring prominently as both an origin and a destination of FDI. This study takes a firm-level perspective to empirically address the relationship between inward FDI, outward FDI, and firm-level performance in India. Using the Orbis database, our estimates reveal that Indian firms that have at least one foreign shareholder and/or one foreign subsidiary outperform those that do not. Controlling for endogeneity through propensity score matching and difference-in-difference techniques, we show that the deeper the FDI involvement, the larger the performance differentials. Moreover, compared with investing abroad, receiving foreign capital can contribute more toward enhancing the performance of Indian firms.
    Keywords: India, Foreign Direct Investment (FDI), inward, outward, firm-level performance
    JEL: F23 L25 O53
    Date: 2021–09
  6. By: Hélia Costa; Giuseppe Nicoletti; Mauro Pisu; Christina von Rueden
    Abstract: Online platform use has grown remarkably in the last decade. Despite this, our understanding of its implications for economic outcomes is scarce and often limited to case studies and advanced countries. Using a newly built harmonised international dataset of online platforms and their use across 43 countries, covering the 2013-18 period and seven areas of activity, we contribute to filling this gap. Specifically, we investigate whether and under which market conditions platform uptake leads to changes in incumbent firms’ productivity. We find that platform use increases labour productivity growth in firms operating in the same sector, and that this takes place through increases in value added growth as opposed to decreases in employment. What is more, productivity gains are greater for small firms and firms in the middle of the productivity distribution, suggesting that online platforms can play an important role in levelling the playing field between SMEs and large companies and in narrowing productivity gaps among firms. Finally, productivity gains are stronger in more dynamic platform markets. Our findings offer insights on factors and policies that can be leveraged to encourage platform development in ways that are beneficial for the economy.
    Keywords: digitalisation, firm behaviour, online platforms, Productivity
    JEL: D22 D24 O33 O47
    Date: 2021–10–05
  7. By: Paula Garda
    Abstract: The sanitary crisis, created by the outbreak COVID-19, is accelerating Chile’s digital transformation, which has seen a surge in e-learning, streaming, online shopping and marketing and teleworking. The digital transformation has the potential to revamp productivity and inclusiveness, although it comes with adoption barriers and transition costs. Connectivity has increased substantially in the last decades, and the country is ahead of the region. However, fixed high-speed broadband adoption, essential for the digital transformation, lags behind. Firms have started to adopt digital technologies but micro firms and SMEs are well behind. Rural areas have lower connectivity and many workers lack the skills to thrive in the digital world. Lowering the entry barriers in the communication sector and making regulations simpler and clearer would ease infrastructure deployment. Targeted policies for SMEs, such as development of sources of financing or specific programmes for adopting digital tools, would help them access and use digital tools, increasing productivity. Reforms to the innovation ecosystem, competition and the regulatory framework are also needed. To reap the benefits of digitalisation for all, it is necessary to continue investing in quality foundational skills, adult and lifelong learning and in high-skilled ICT specialists. Labour market policies need to be adapted to face the challenges and exploit the benefits posed by the digital transformation. An effective safety net would address possible labour market disruptions.
    Keywords: Chile, connectivity, digital transformation, labour market, productivity, skills
    JEL: D24 J24 J08 I28
    Date: 2021–10–05

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