nep-bec New Economics Papers
on Business Economics
Issue of 2023‒04‒03
eight papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Robot adoption, worker-firm sorting and wage inequality: Evidence from administrative panel data By Ester Faia; Gianmarco I. P. Ottaviano; Saverio Spinella
  2. The Law of Proportionate Effect: A test based on the graphical model methodology By Guerzoni, Marco; Riso, Luigi; Vivarelli, Marco
  3. The role of product digitization for productivity By Schubert, Torben; Ashouri, Sajad; Deschryvere, Matthias; Jäger, Angela; Visentin, Fabiana; Cunningham, Scott; Hajikhani, Arash; Pukelis, Lukas; Suominen, Arho
  4. Persistent Debt and Business Cycles in an Economy with Production Heterogeneity By Aubhik Khan; Soyoung Lee
  5. Prestige, promotion, and pay By Ferreira, Daniel; Nikolowa, Radoslawa
  6. Revisiting the effect of search frictions on market concentration By Jules Depersin; B\'ereng\`ere Patault
  7. Managing Employee Retention Concerns: Evidence from U.S. Census Data By Eva Labro; James D. Omartian
  8. Search and Competition Under Product Quality Uncertainty By Chen, Yongmin

  1. By: Ester Faia; Gianmarco I. P. Ottaviano; Saverio Spinella
    Abstract: Leveraging the geographic dimension of a large administrative panel on employer-employee contracts, we study the impact of robot adoption on wage inequality through changes in worker-firm assortativity. Using recently developed methods to correctly and robustly estimate worker and firm unobserved characteristics, we find that robot adoption increases wage inequality by fostering both horizontal and vertical task specialization across firms. In local economies where robot penetration has been more pronounced, workers performing similar tasks have disproportionately clustered in the same firms ('segregation'). Moreover, such clustering has been characterized by the concentration of higher earners performing more complex tasks in firms paying higher wages ('sorting'). These firms are more productive and poach more aggressively. We rationalize these findings through a simple extension of a well-established class of models with two-sided heterogeneity, on-the-job search, rent sharing and employee Bertrand poaching, where we allow robot adoption to strengthen the complementarities between firm and worker characteristics.
    Keywords: robot adoption, worker-firm sorting, wage inequality, technological change, finite mixture models
    Date: 2023–02–10
  2. By: Guerzoni, Marco; Riso, Luigi; Vivarelli, Marco
    Abstract: Using both regression analysis and an unsupervised graphical model approach (never applied before to this issue), we confirm the rejection of the Gibrat's law when our firm-level data are considered over the entire investigated period, while the opposite is true when we allow for market selection. Indeed, the growth behavior of the re-shaped (smaller) population of the survived most efficient firms is in line with the Law of Proportionate Effect; this evidence reconciles early and current literature testing Gibrat's law and may have interesting implications in terms of both applied and theoretical research.
    Keywords: Gibrat's Law, firm survival, market selection, firm growth
    JEL: L11
    Date: 2023
  3. By: Schubert, Torben; Ashouri, Sajad; Deschryvere, Matthias; Jäger, Angela; Visentin, Fabiana (RS: GSBE other - not theme-related research, Mt Economic Research Inst on Innov/Techn); Cunningham, Scott; Hajikhani, Arash; Pukelis, Lukas; Suominen, Arho
    Abstract: Digitalization is considered an important driver of the unravelling societal and economic transformations. However, holding both promises and challenges, its effects on the performance of individual firms are still underexplored. In this paper, we recognize that digitalization may take many shapes and try isolating the effects specifically of product digitization on firm level labour productivity. Our analyses are based on a large Europe-wide unique dataset combining structured information from ORBIS and PATSTAT with novel web-scraped information on digitalization in firms involved in high-tech manufacturing. We show that digitalization benefits productivity. However, the effect appears to result exclusively from product digitization, while a general digital intensity measure turned out to be insignificant. Moreover, we show that the effects are stronger for firms with higher initial productivity and firms located in countries considered digitally leading. Our results from the European high-tech sector suggest that the digital transformation in Europe is slow paced and scaled-up in only a fraction of the firms.
    JEL: O49 C81 O33 D20 O47
    Date: 2023–02–14
  4. By: Aubhik Khan; Soyoung Lee
    Abstract: We study an economy with a time-varying distribution of production to examine the role of debt in amplifying and propagating recessions. In our model, entrepreneurs use risky, long-term debt to finance capital. Liquid assets serve as collateral and transaction costs make debt illiquid. Debt payments increase the volatility of earnings relative to output, deterring entrepreneurs with insufficient collateral from financing efficient levels of capital. This results in a misallocation of resources. In a large recession, productive entrepreneurs with high levels of debt deleverage, amplifying the downturn. The model economy exhibits asymmetries over the business cycle. Recessions involve a rapid deterioration of economic activity, while expansions are more gradual. When a recession coincides with a rise in leverage resulting from a fall in assets, fewer producers operate at efficient levels. When the aggregate business leverage is ten percentage points above average, the half-life of the recovery doubles.
    Keywords: Business fluctuations and cycles; Firm dynamics, Productivity
    JEL: E23 E32
    Date: 2023–03
  5. By: Ferreira, Daniel; Nikolowa, Radoslawa
    Abstract: We develop a theory in which financial (and other professional services) firms design career structures to “sell” prestigious jobs to qualified candidates. Firms create less-prestigious entry-level jobs, which serve as currency for employees to pay for the right to compete for the more prestigious jobs. In optimal career structures, entrylevel employees (“associates”) compete for better paid and more prestigious positions (“managing directors” or “partners”). The model provides new implications relating job prestige to compensation, employment, competition, and the size of the financial sector.
    Keywords: job prestige; professional careers; financial service firms
    JEL: F3 G3 R14 J01
    Date: 2023–02–15
  6. By: Jules Depersin; B\'ereng\`ere Patault
    Abstract: Search frictions can impede the formation of optimal matches between consumer and supplier, or employee and employer, and lead to inefficiencies. This paper revisits the effect of search frictions on the firm size distribution when challenging two common but strong assumptions: that all agents share the same ranking of firms, and that agents meet all firms, whether small or large, at the same rate. We build a random search model in which we relax those two assumptions and show that the intensity of search frictions has a non monotonic effect on market concentration. An increase in friction intensity increases market concentration up to a certain threshold of frictions, that depends on the slope of the meeting rate with respect to firm size. We leverage unique French customs data to estimate this slope. First, we find that in a range of plausible scenarios, search frictions intensity increases market concentration. Second, we show that slopes have increased over time, which unambiguously increases market concentration in our model. Overall, we shed light on the importance of the structure of frictions, rather than their intensity, to understand market concentration.
    Date: 2023–03
  7. By: Eva Labro; James D. Omartian
    Abstract: Using Census microdata on 14, 000 manufacturing plants, we examine how firms man age employee retention concerns in response to local wage pressure. We validate our measure of employee retention concerns by documenting that plants respond with wage increases, and do so more when the employees’ human capital is higher. We doc ument substantial use of non-wage levers in response to retention concerns. Plants shift incentives to increase the likelihood that bonuses can be paid: performance target transparency declines, as does the use of localized performance metrics for bonuses. Furthermore, promotions become more meritocratic, ensuring key employees can be promoted and retained. Lastly, decision-making authority at the plant-level increases, offering more agency to local employees. We find evidence consistent with inequity aversion constraining the response to local wage pressure, and document spillovers in both wage and non-wage reactions across same-firm plants.
    Keywords: Retention concerns, Inequity aversion, Multi-divisional firms
    Date: 2023–02
  8. By: Chen, Yongmin
    Abstract: I review models of consumer search and competition when product quality is uncertain and differs across firms. Although firms are vertically---and possibly also horizontally---differentiated, an appropriate symmetric price equilibrium with optimal consumer search can be neatly characterized. I propose a "random-quality" framework that unifies these models and discuss their insights on the operation of consumer search markets, focusing on (i) online advertising and search through platforms, (ii) the welfare effects of entry in search markets, and (iii) the role of quality observability under search frictions. I suggest directions for further research on these and related topics.
    Keywords: consumer search, search cost, competition, product quality, firm quality, platform, entry, inspection goods, experience goods, quality observability.
    JEL: D8 L1
    Date: 2023–03–06

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