nep-bec New Economics Papers
on Business Economics
Issue of 2024–12–23
three papers chosen by
Vasileios Bougioukos, Richmond American University


  1. From Labor to Intermediates: Firm Growth, Input Substitution, and Monopsony By Mertens, Matthias; Schoefer, Benjamin
  2. Assortative Matching and Wages: The Role of Selection By Borovickova, Katarina; Shimer, Robert
  3. Weak Permission is not Well-Founded, Grounded and Stable By Governatori, Guido

  1. By: Mertens, Matthias (MIT); Schoefer, Benjamin (University of California, Berkeley)
    Abstract: We document and dissect a new stylized fact about firm growth: the shift from labor to intermediate inputs. This shift occurs in input quantities, cost and output shares, and output elasticities. We establish this fact using German firm-level data and replicate it in administrative firm data from 11 additional countries. We also document these patterns in micro-aggregated industry data for 20 European countries (and, with respect to industry cost shares, for the US). We rationalize this novel regularity within a parsimonious model featuring (i) an elasticity of substitution between intermediates and labor that exceeds unity, and (ii) an increasing shadow price of labor relative to intermediates, due to monopsony power over labor or labor adjustment costs. The shift from labor to intermediates accounts for one half to one third of the decline in the labor share in growing firms (the remainder is due to wage markdowns and markups) and rationalizes most of the labor share decline ingrowing industries.
    Date: 2024–11
    URL: https://d.repec.org/n?u=RePEc:iza:izadps:dp17461
  2. By: Borovickova, Katarina (Federal Reserve Bank of Richmond); Shimer, Robert (University of Chicago)
    Abstract: We develop a random search model with two-sided heterogeneity and match-specific productivity shocks to explain why high-productivity workers tend to work at high-productivity firms despite low-productivity workers gaining about as much from such matches. Our model has two key predictions: i) the average log wage that a worker receives is increasing in the worker's and employer's productivity, with low-productivity workers gaining proportionally more at high-productivity firms and ii) there is assortative matching between a worker's productivity and that of her employer. Selective job acceptance drives these patterns. All workers are equally likely to meet all firms, but workers have higher surplus from meeting firms of similar productivity. The high surplus meetings result in matches more frequently, generating assortative matching. Only the subset of meetings that result in matches are observed in administrative wage data, shaping wages. We show that our findings are quantitatively consistent with recent empirical results. Moreover, we prove this selection is not detected using standard empirical approaches, highlighting the importance of theory-guided empirical work. Our results imply that encouraging high-wage firms to hire low-wage workers may be less effective at reducing wage inequality than wage patterns suggest.
    JEL: J31 J64
    Date: 2024–11
    URL: https://d.repec.org/n?u=RePEc:iza:izadps:dp17454
  3. By: Governatori, Guido
    Abstract: We consider the notion of weak permission as the failure to conclude that the opposite obligation. We investigate the issue from the point of non-monotonic reasoning, specifically logic programming and structured argumentation, and we show that it is not possible to capture weak permission in the presence of deontic conflicts under the well-founded, grounded and (sceptical) stable semantics.
    Date: 2024–11–19
    URL: https://d.repec.org/n?u=RePEc:osf:osfxxx:dr5wb

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