nep-bec New Economics Papers
on Business Economics
Issue of 2024‒03‒04
eleven papers chosen by
Vasileios Bougioukos, London South Bank University

  1. Robot adoption, worker-firm sorting and wage inequality: evidence from administrative panel data By Faia, Ester; Ottaviano, Gianmarco Ireo Paolo; Spinella, Saverio
  2. Low-Wage Jobs, Foreign-Born Workers, and Firm Performance By Catalina Amuedo-Dorantes; Esther Arenas-Arroyo; Parag Mahajan; Bernhard Schmidpeter
  3. Strapped for cash: the role of financial constraints for innovating firms By Bøler, Esther Ann; Moxnes, Andreas; Ulltveit-Moe, Karen Helene
  4. Cloud Computing and Extensive Margins of Exports - Evidence for Manufacturing Firms from 27 EU Countries By Joachim Wagner
  5. Vertical product differentiation, prominence, and costly search By Rozzi, Roberto; Schmitt, Stefanie Y.
  6. The Anatomy of Concentration: New Evidence From a Unified Framework By Kenneth R. Ahern; Lei Kong; Xinyan Yan
  7. Born in bad times: Economic conditions, selection and employment By Lynda Sanderson
  8. The Rise of Specialized Firms By Lorenz K.F. Ekerdt; Kai-Jie Wu
  9. Do carbon taxes kill jobs? firm-level evidence from British Columbia By Azevedo, Deven; Wolf, Hendrik; Yamazaki, Akio
  10. Banks, Credit Reallocation, and Creative Destruction By Christian Keuschnigg; Michael Kogler; Johannes Matt
  11. R&D Subsidies and Multi-product Firms By Rikard FORSLID; OKUBO Toshihiro

  1. By: Faia, Ester; Ottaviano, Gianmarco Ireo Paolo; Spinella, Saverio
    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; European Union’s Horizon 2020 research and innovation programme (grant agreement n 789049-MIMAT-ERC2017-ADG)
    JEL: J22 J23 J31 J62 E21 D31
    Date: 2023–02–10
  2. By: Catalina Amuedo-Dorantes; Esther Arenas-Arroyo; Parag Mahajan; Bernhard Schmidpeter
    Abstract: We examine how migrant workers impact firm performance using administrative data from the United States. Exploiting an unexpected change in firms’ likelihood of securing low-wage workers through the H-2B visa program, we find limited crowd-out of other forms of employment and no impact on average pay at the firm. Yet, access to H-2B workers raises firms’ annual revenues and survival likelihood. Our results are consistent with the notion that guest worker programs can help address labor shortages without inflicting large losses on incumbent workers.
    Keywords: guest workers, migrants, employment, firm dynamics, H-2B visa
    JEL: J23 F22 J61
    Date: 2024–01
  3. By: Bøler, Esther Ann; Moxnes, Andreas; Ulltveit-Moe, Karen Helene
    Abstract: This paper makes use of a reform that allowed firms to use patents as stand-alone collateral, to estimate the magnitude of collateral constraints and to quantify the aggregate impact of these constraints on misallocation and productivity. Using matched firm-bank data for Norway, we find that bank borrowing increased for firms affected by the reform relative to the control group. We also find an increase in the capital stock, employment and innovation as well as equity funding. We interpret the results through the lens of a model of monopolistic competition with potentially collateral constrained heterogeneous firms. Parameterizing the model using well-identified moments from the reduced form exercise, we find quantitatively large gains in output per worker in the sectors in the economy dominated by constrained (and intangible-intensive) firms. The gains are primarily driven by capital deepening, whereas within-industry misallocation plays a smaller role.
    Keywords: intangible capital; patents; credit constraints; misallocation; productivity
    JEL: G32 L25 O34 O47
    Date: 2023–03–14
  4. By: Joachim Wagner (Leuphana Universität Lüneburg, Institut für Volkswirtschaftslehre and Kiel Centre for Globalization)
    Abstract: The use of cloud computing by firms can be expected to go hand in hand with higher productivity, more innovations, and lower costs, and, therefore, should be positively related to export activities. Empirical evidence on the link between cloud computing and exports, however, is missing. This paper uses firm level data for manufacturing enterprises from the 27 member countries of the European Union taken from the Flash Eurobarometer 486 survey conducted in February – May 2020 to investigate this link. Applying standard parametric econometric models and a new machine-learning estimator, Kernel-Regularized Least Squares (KRLS), we find that firms which use cloud computing do more often export, do more often export to various destinations all over the world, and do export to more different destinations. The estimated cloud computing premium for extensive margins of exports is statistically highly significant after controlling for firm size, firm age, patents, and country. Furthermore, the size of this premium can be considered to be large. Extensive margins of exports and the use of cloud computing are positively related.
    Keywords: Cloud computing, exports, firm level data, Flash Eurobarometer 486, kernel-regularized least squares (KRLS)
    JEL: D22 F14
    Date: 2024–02
  5. By: Rozzi, Roberto; Schmitt, Stefanie Y.
    Abstract: In many markets, firms offering low-quality goods are more prominent than firms offering high-quality goods. Then, consumers are perfectly informed about the good of the prominent low-quality firm but incur search costs to bring the high-quality good of a competitor to mind. We analyze under which circumstances the less-prominent firm has an incentive to invest in high quality. We investigate two scenarios: (i) homogeneous and (ii) heterogeneous search costs. If search costs are homogeneous, the less-prominent firm produces highquality goods for sufficiently low search costs, and an increase in search costs reduces the range of values for which the less-prominent firm invests in high quality. In contrast, if search costs are heterogeneous, the less-prominent firm produces high-quality goods for sufficiently high search cost heterogeneity, and an increase in average search costs expands the range of values for which the less-prominent firm invests in high quality.
    Keywords: consideration sets, duopoly, prominence, search costs, vertical product differentiation
    JEL: D43 D83 L13
    Date: 2024
  6. By: Kenneth R. Ahern; Lei Kong; Xinyan Yan
    Abstract: Concentration is a single summary statistic driven by two opposing forces: the number of firms in a market and the evenness of their market shares. This paper introduces a generalized measure of concentration that allows researchers to vary the relative importance of each force. Using the generalized measure, we show that the widely-cited evidence of increasing industrial employment concentration is driven by the Herfindahl Index's over-weighting of evenness and under-weighting of firm counts. We propose an alternative, equally-weighted measure that has an equivalent economic meaning as the Herfindahl Index, but possesses superior statistical attributes in typical firm size distributions. Using this balanced measure, we find that employment concentration decreased from 1990 to 2020. Finally, decomposing aggregate diversity into meaningful geographic and industry subdivisions reveals that concentration within regional markets has fallen, while concentration between markets has risen.
    JEL: C46 D40 L11
    Date: 2024–01
  7. By: Lynda Sanderson (Productivity Commission)
    Abstract: Periods of recession can have long term impacts on the economy. Entry rates decline during recessions, depressing aggregate job creation in future. At the same time, conditions at entry may also affect long-run growth prospects at the firm level. This paper explores patterns of firm birth, growth, and death for cohorts of New Zealand firms born between 2002 and 2015, and examines the role of selection for explaining those patterns. Firms born in "bad times" - the years of and immediately following the Global Financial Crisis - are shown to start out, and remain, smaller than comparable firms born in more buoyant economic circumstances. Industry composition, firm type, and the characteristics of entrepreneurs are shown to vary across the economic cycle but cannot fully explain the size gap. While firm size gaps are small in absolute terms, as entering firms tend to be very small regardless of the economic conditions, when aggregated across firms these small employment gaps can lead to sizeable reductions in cohort employment.
    Keywords: firm dynamics, entrepreneurship, employment, age-period-cohort (APC) model, start-ups, Global Financial Crisis (GFC)
    JEL: D22 E32
    Date: 2024–01
  8. By: Lorenz K.F. Ekerdt; Kai-Jie Wu
    Abstract: This paper studies firm diversification over 6-digit NAICS industries in U.S. manufacturing. We find that firms specializing in fewer industries now account for a substantially greater share of production than 40 years ago. This reallocation is a key driver of rising industry concentration. Specialized firms have displaced diversified firms among industry leaders—absent this reallocation concentration would have decreased. We then provide evidence that specialized firms produce higher-quality goods: specialized firms tend to charge higher unit prices and are more insulated against Chinese import competition. Based on our empirical findings, we propose a theory in which growth shifts demand toward specialized, high-quality firms, which eventually increases concentration. We conclude that one should expect rising industry concentration in a growing economy.
    JEL: L25 O33 F14 L11 O47
    Date: 2024–02
  9. By: Azevedo, Deven; Wolf, Hendrik; Yamazaki, Akio
    Abstract: This paper investigates the employment impacts of British Columbia’s revenue neutral carbon tax. Using the synthetic control method with firm-level data, we find considerable heterogeneity in employment responses to the policy. We show that firm size matters. In particular, the carbon tax had a negative impact on large emissionintensive firms, but simultaneous tax cuts and transfers increased the purchasing power of low income households, substantially benefiting small businesses in the service sector and food/clothing manufacturing. Furthermore, we find that aggregate employment was not adversely affected by the policy. Our results provide additional insight for the “job-shifting hypothesis” of revenue neutral carbon taxes.
    Keywords: carbon tax; employment; unilateral climate policy; firms
    JEL: E24 H23 J20 Q50
    Date: 2023–01–31
  10. By: Christian Keuschnigg (University of St.Gallen, Institute of Economics (FGN-HSG)); Michael Kogler (German Council of Economic Experts); Johannes Matt (London School of Economics (LSE); Centre for Macroeconomics (CFM))
    Abstract: How do banks’ lending decisions influence firm turnover and creative destruction? We develop a dynamic general equilibrium model in which banks restructure loans with high default risk, thereby releasing funds for new lending and forcing firms with poor prospects to close down. By reducing banks’ reliance on external funds, loan restructuring lowers the equilibrium interest rate, which stimulates firm creation. We derive analytical and quantitative results from the model calibrated to German data: A lower cost of loan liquidation (e.g., improved insolvency laws) accelerates firm entry and exit, and boosts aggregate capital productivity mainly by incentivizing more active credit reallocation. Restructuring also complements policies that aim at stimulating firm creation (e.g., R&D subsidies) as it mitigates a crowding-out of entry via the interest rate.
    Keywords: Creative destruction, reallocation, bank credit, productivity
    JEL: E23 E44 G21 O4
    Date: 2024–01
  11. By: Rikard FORSLID; OKUBO Toshihiro
    Abstract: We analyze firm subsidies directed at the fixed costs of developing new products in a setting with international trade and multiproduct heterogeneous firms that can move between countries. Socially optimal unilateral subsidies balance the welfare gains from increased variety against taxes. Freer trade implies lower optimal unilateral subsidies as more of the benefits spill over to foreign consumers. For similar reasons, the simulated Nash subsidies will be lower with lower trade costs. This is consistent with the current situation in the world economy, where trade protection and higher subsidies seem to go hand in hand.
    Date: 2024–02

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