nep-bec New Economics Papers
on Business Economics
Issue of 2022‒11‒28
seven papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Firm Sorting and Spatial Inequality By Ilse Lindenlaub; Ryungha Oh; Michael Peters
  2. Start-up types and macroeconomic performance in Europe By De Haas, Ralph; Sterk, Vincent; Van Horen, Neeltje
  3. Recovering Missing Firm Characteristics with Attention-Based Machine Learning By Beckmeyer, Heiner; Wiedemann, Timo
  4. What is productive investment? Insights from firm-level data for the United Kingdom By Karmakar, Sudipto; Melolinna, Marko; Schnattinger, Philip
  5. Firm Consolidation and Labor Market Outcomes By Sabien Dobbelaere; Grace McCormack; Daniel Prinz; Sándor Sóvágó
  6. Performance feedback and job search behavior: Empirical evidence from linked employer-employee data By Pohlan, Laura; Steffes, Susanne
  7. Coordinated Firm-Level Work Processes and Macroeconomic Resilience By Moritz Kuhn; Jinfeng Luo; Iourii Manovskii; Xincheng Qiu

  1. By: Ilse Lindenlaub; Ryungha Oh; Michael Peters
    Abstract: We study the importance of firm sorting for spatial inequality. If productive locations are able to attract the most productive firms, then firm sorting acts as an amplifier of spatial inequality. We develop a novel model of spatial firm sorting, in which heterogeneous firms first choose a location and then hire workers in a frictional local labor market. Firms' location choices are guided by a fundamental trade-off: Operating in productive locations increases output per worker, but sharing a labor market with other productive firms makes it hard to poach and retain workers, and hence limits firm size. We show that sorting between firms and locations is positive—i.e., more productive firms settle in more productive locations—if firm and location productivity are complements and labor market frictions are sufficiently large. We estimate our model using administrative data from Germany and find that highly productive firms indeed sort into the most productive locations. In our main application, we quantify the role of firm sorting for wage differences between East and West Germany, which reveals that firm sorting accounts for 17%-27% of the West-East wage gap.
    JEL: E20 E23 E24 E25 J30 J61 J63
    Date: 2022–11
  2. By: De Haas, Ralph (European Bank for Reconstruction and Development, CEPR and KU Leuven); Sterk, Vincent (University College London and CEPR); Van Horen, Neeltje (Bank of England)
    Abstract: Can policymakers improve macroeconomic performance by encouraging the entry of high‑performance start‑ups? To answer this question, we construct a novel and comprehensive data set on 1.3 million start‑ups in 10 European countries. We apply cluster analysis to identify distinct start‑up types and trace their development over time. Three stylised facts transpire. First, we uncover five well‑separated start‑up types that are consistently present across countries, industries, and cohorts. We label these basic, large, capital‑intensive, cash‑intensive, and high‑leverage. Second, the initial differences between these start‑up types are persistent. Third, each start‑up type displays a characteristic life cycle in terms of productivity, employment generation, and exit rates. We feed these empirical results into an agnostic firm dynamics model to quantify how much structural policy could improve macroeconomic performance by shifting the composition of start‑ups. We find that substantial gains in aggregate employment and productivity can be made through policies that benefit high‑performance start‑ups (such as large and capital‑intensive ones) while discouraging the entry of underperforming firms (such as highly leveraged ones).
    Keywords: Start‑ups; firm entry; productivity; corporate tax; entrepreneurship; cluster analysis.
    JEL: D22 D24 G32 L11 L25 L26 O47
    Date: 2022–06–17
  3. By: Beckmeyer, Heiner; Wiedemann, Timo
    JEL: G10
    Date: 2022
  4. By: Karmakar, Sudipto (Bank of England); Melolinna, Marko (Bank of England); Schnattinger, Philip (Bank of England)
    Abstract: This paper studies the effects of different types of investment and levels of debt on productivity in the UK, using firm-level data. We set out a stylised model of a dynamic firm profit-maximisation problem, and augment this model with an external financing option in a novel way. We use the model to illustrate why productivity-enhancing investment differs from other uses of company funds in terms of its effects on total factor productivity (TFP), and how these positive effects can be stronger for firms that have higher indebtedness. We then examine the issue empirically with data on listed firms in the UK. Our main finding is that intangibles investment are a good proxy for productivity-enhancing investment, as they have a positive effect on TFP, and in those firms that have high debt and high levels of intangibles, these effects are even more pronounced. On the other hand, we find no consistent evidence of positive TFP effects for other uses of funds, like tangible capital expenditure or dividends and equity buybacks. The effects of debt on TFP are smaller and more tenuous, but we find no evidence of a negative TFP effect of debt in firms that have high levels of intangibles intensity.
    Keywords: Dynamic programming; firm-level productivity; intangible assets; panel regression
    JEL: C61 D22 D24 O30
    Date: 2022–07–15
  5. By: Sabien Dobbelaere (Vrije Universiteit Amsterdam); Grace McCormack (University of Southern California); Daniel Prinz (World Bank); Sándor Sóvágó (University of Groningen)
    Abstract: Using rich administrative data from the Netherlands, we study the consequences of firm consolidation for workers. For workers at acquired firms, takeovers are associated with a 8.5% drop in employment at the consolidated firm and a 2.6% drop in total labor income. These effects are persistent even four years later. We show that the primary mechanism for this job loss is labor restructuring at consolidating firms. Specifically, workers with higher-than-expected pay relative to their human capital and workers with skills that are likely already present at acquirers are less likely to be retained.
    Keywords: Takeovers, labor market outcomes, labor restructuring
    JEL: G34 J2 J3 M51
    Date: 2022–11–13
  6. By: Pohlan, Laura; Steffes, Susanne
    Abstract: In this paper, we study whether performance feedback can serve as an instrument for firms to increase employee retention. Feedback on the relative performance may affect individual job search behavior differently depending on workers' relative rank among their peers. In line with these considerations, empirical evidence based on panel employer-employee data shows that employees performing below the median decrease their turnover intentions after the implementation of a performance feedback system at the establishment level. We find no effect for employees performing above the median.
    Keywords: quit behavior,performance feedback,internal labor markets,linked employer-employee data
    JEL: M51 M54 J63 C23
    Date: 2022
  7. By: Moritz Kuhn (University of Bonn, Department of Economics); Jinfeng Luo (University of Bonn, Department of Economics); Iourii Manovskii (University of Pennsylvania, Department of Economics); Xincheng Qiu (University of Pennsylvania, Department of Economics)
    Abstract: The production processes at many firms rely on a highly choreographed and interdependent network of workers performing specialized jobs. We designed and implemented a targeted employer survey to measure the extent of coordination in work processes. We link this firm-level coordination measure to administrative data and find that firms with a more coordinated work process are more productive, pay higher wages, and experience lower worker turnover. Yet, these firms suffer more severe negative consequences from worker absences and adopt various strategies to mitigate such risk, the reliance on which we document. While the standard unemployment insurance policy pays benefits to workers who lose their jobs, the short-time work policy widely adopted in Germany compensates workers who remain employed with reduced hours for the associated loss of earnings. This policy can benefit employers with a more coordinated production process because they can lower the scale of production by reducing hours while keeping all workers needed for the production process employed, increasing the resilience of these employers to large idiosyncratic and aggregate shocks.
    Keywords: Labor markets, Coordination, Economic resilience, Work process, Covid-19
    JEL: E23 E24 J24 J65
    Date: 2022–11

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