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on Business Economics |
| By: | Stephen Ayerst; Duc Nguyen; Diego Restuccia |
| Abstract: | We examine micro and macro productivity differences across nations using cross-country firm-level data and a quantitative model of misallocation that integrates firms' operational (selection) and investment (technology) decisions. Empirically, less developed countries display greater distortions and wider dispersion in firm productivity, driven largely by the higher prevalence of low-productivity firms. Quantitatively, cross-country differences in measured distortions account for most of the observed micro-level patterns and over half of aggregate labor productivity gaps. Both selection and technology channels are essential to matching the data, while static misallocation also plays an important role, albeit smaller. |
| Keywords: | Firms, productivity, size, distortions, misallocation, selection, technology. |
| JEL: | O11 O14 O4 |
| Date: | 2025–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-806 |
| By: | Massenz, Gabriella (Research Institute of Industrial Economics (IFN)) |
| Abstract: | How do corporate tax systems shape the boundaries of the firm? This paper shows that nonlinear corporate income taxation can distort firms’ organizational structures by inducing tax-motivated firm splitting. I use administrative data on corporations and their owners and exploit two reforms that altered the tax benefits and costs of dividing a firm into multiple entities. First, I show that a temporary increase in the tax advantage of splitting reduces the share of firms filing jointly for corporate income tax purposes. Second, once the benefit is perceived as permanent and minimum capital requirements for new firms are abolished, the number of firms per entrepreneur rises significantly and persistently. Finally, I show that reorganizations are primarily driven by tax motives, as I find no effect on firms’ total assets, employment, or industry diversification. These findings highlight extensive-margin responses of business organization to corporate taxation, with relevant implications for the understanding of firm dynamics and for tax design. |
| Keywords: | Firm splitting; Corporate income tax; Tax avoidance |
| JEL: | H25 H26 H32 |
| Date: | 2025–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:iuiwop:1539 |
| By: | Jacob Adenbaum (CUNEF Universidad); Fil Babalievsky (Census Bureau); William Jungerman (UNC Chapel Hill) |
| Abstract: | Why do wages grow faster in bigger cities? We use French administrative data to decompose the urban wage growth premium and find that the answer has surprisingly little to do with cities themselves. While we document substantially faster wage growth in larger cities, 80% of the premium disappears after controlling for the composition of firms and coworkers. We also document significantly higher job-to-job transition rates in larger cities, suggesting workers climb the job ladder faster. Most strikingly, when we focus on workers who remain in the same job -- eliminating the job ladder mechanism -- the urban wage growth premium falls by 94.1% after accounting for firms and coworkers. The residual effect is statistically indistinguishable from zero. These results challenge the view that cities generate human capital spillovers ``in the air, '' suggesting instead that urban wage dynamics reflect the sorting of firms and workers and the pace of job mobility. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.22294 |
| By: | Siavash Mohades; Maria Savona |
| Abstract: | This paper investigates whether investments in data affect firms’ R&D and whether the two are productivity-enhancing complements. We conceptualise and test whether investments in data reduce market uncertainty, thereby mitigating the inherent uncertainty of R&D and enhancing research and innovation investment. Using Italian firm-level data from 2002 to 2024 and exploiting the GDPR as an instrument, we identify a positive causal effect of data on R&D investment. Moreover, we find that data and R&D are complementary in enhancing both short- and long-term productivity. Our analyses also identify a positive role of R&D for productivity only when firms are data-intensive. |
| Keywords: | uncertainty, data, R&D, digitalisation, innovation, productivity |
| JEL: | D22 D25 D82 O31 O33 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12230 |
| By: | Cauê Dobbin (Georgetown University); Daniel Fernandez (CEMFI, Centro de Estudios Monetarios y Financieros); Tom Zohar (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | We challenge the view that the negative correlation between firm quality and separation rates reflects efficient separations. Using Brazilian administrative data, we show that this correlation is driven by lower layoff rates at high-quality firms, not differences in quits. We develop a job search model where wage rigidity and productivity uncertainty generate inefficient layoffs. The model predicts that higherquality firms have larger markdowns and, consequently, fewer layoffs. Empirically, we validate this by showing that firms facing stronger wage rigidity have higher layoffs and a steeper quality-layoff correlation, and that markdowns are higher in better firms and negatively correlated with layoffs. |
| Keywords: | Layoffs, wage rigidity, firm quality, separations, job stability, Brazil, markdowns. |
| JEL: | J63 J41 J31 J64 E24 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cmf:wpaper:wp2025_2524 |
| By: | Mariano Bosch (Inter American Development Bank); Guillermo Cruces (Universidad de San Andrés-CONICET, University of Nottingham); Stephanie González (CEDLAS-FCE-UNLP); María Teresa Silva-Porto (Inter American Development Bank) |
| Abstract: | In developing countries, informal labor is not only employed by illegal or unregistered firms but also by legal firms that hire workers informally, known as the intensive margin of labor informality. Reducing this type of work may have ambiguous effects on formal employment, depending on factors such as firm size and productivity. In collaboration with Peru’s labor inspection authority, we conducted a randomized mailing experiment targeting large firms with a high propensity for employing workers informally. The authority sent letters with either deterrence messages detailing fines for non-compliance or social norms messages highlighting the positive impacts of formality. We analyzed the impact of this intervention on formal employment levels over the following two years using monthly administrative data. The treated firms (particularly those in the deterrence treatment arm) and larger firms increased their formal employment levels. However, these increases followed a seasonal pattern coinciding with the high labor demand during the tourist season, suggesting that prior to the intervention, firms were employing temporary workers informally. The higher perceived cost of non-compliance led them to formalize some of these workers. The informal hiring of seasonal workers by these firms appears to have been motivated by basic tax evasion, and the absence of a negative effect on firm-level formal employment indicates that the firms were exploiting rents from low enforcement of regulations. |
| Keywords: | Randomized Controlled Trial, Social Security, Tax Audit, Tax Evasion, Mailing, Informality, Labor formalization |
| JEL: | C93 D91 H55 J46 O17 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:sad:wpaper:172 |
| By: | Holmberg, Johan (Department of Economics, Umeå University); Selin, Håkan (Institute for Evaluation of Labour Market and Education Policy (IFAU) and UCFS) |
| Abstract: | Several papers examine how firms react to dividend tax reforms. But can tax reforms affect firm behavior without even occurring? An increase in the dividend tax on shares of Swedish closely-held corporations, scheduled for January 1, 2018, was canceled at short notice. In a difference-in-difference setting, we examine how firms reacted to the government’s announced reform plans. We find that dividend payments increased in the “pre-reform years” and declined sharply in 2018, especially for cash-rich firms. This led to a reduction in the cash holdings, with potential implications for firm activity. |
| Keywords: | Owner level taxes; tax planning; investments |
| JEL: | G35 H32 |
| Date: | 2025–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1040 |
| By: | John M. Barrios; Jessie Jianwen Guo; Yanping Zhu |
| Abstract: | Financial misconduct is often a team activity, facilitated by face-to-face interactions, shared norms, and trust. We exploit the sudden shift to remote work during COVID-19 to examine how workplace organization shapes collusion and financial misconduct. Using a novel firm-level measure of work-from-home feasibility, we find that firms that are more able to operate remotely experienced large post-2020 declines in misconduct. This decline is found across multiple misreporting proxies and is robust to various alternative measures of remote work. Cross-sectional tests indicate stronger declines in teamwork-intensive firms, firms with effective internal controls, and firms with weaker pre-COVID employee perceptions of culture and leadership. Overall, our findings reflect that financial misconduct is a team activity, sensitive to the organizational structure of the firm, with important implications for governance and organizational design. |
| JEL: | D23 G30 G38 G39 J24 K22 M2 M4 M40 M41 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34417 |
| By: | Nils H. Lehr; Pascual Restrepo |
| Abstract: | Leading AI firms claim to prioritize social welfare. How should firms with a social mandate price and deploy AI? We derive pricing formulas that depart from profit maximization by incorporating incentives to improve welfare and reduce labor disruptions. Using US data, we evaluate several scenarios. A welfarist firm that values both profit and welfare should price closer to marginal cost, as efficiency gains outweigh distributional concerns. A conservative firm focused on labor-market stability should price above the profit-maximizing level in the short run, especially when its AI may displace low-income workers. Overall, socially minded firms face a trade-off between expanding access to AI and the resulting loss in profits and labor market risks. |
| JEL: | E0 H0 J0 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34424 |
| By: | Naoto JINJI; Keiko ITO; Toshiyuki MATSUURA |
| Abstract: | This study examines how US export controls targeting Chinese firms affect the export behavior of Japanese firms using Japan Customs data. Focusing on the impact of the US Bureau of Industry and Security’s Entity List (EL), we identify exports from Japanese firms to Chinese firm added to the EL by the end of 2022. We find that inclusion of Chinese firms in the EL led to a significant reduction in Japanese firms’ exports to those firms. In response, the affected Japanese firms increased their exports to non-targeted Chinese firms and firms in countries aligned with the United States. |
| Keywords: | export controls; Entity List; Japan Customs data. |
| JEL: | F13 F14 F51 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:kue:epaper:e-25-008 |
| By: | Wang, Han; Rodríguez-Pose, Andrés |
| Abstract: | This paper examines whether and how government-led institutional changes can reshape regional industrial development trajectories. Using quarterly panel data from Chinese cities between 2019 and 2024, we assess the impact of reforms of the business environment on firm creation within both path creation and path dependent industries. Applying a staggered difference-in-differences approach combined with coarsened exact matching, our findings reveal that business environment reforms significantly increase firm creation in path creation industries, especially in high-tech sectors and cities with initially weaker business environments. Key mechanisms identified include enhancements in the market environment and government services, which are central to driving these effects. |
| Keywords: | path creation; institutional change; business environment; path dependence; firm creation |
| JEL: | O11 R11 R12 |
| Date: | 2025–10–27 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:129990 |
| By: | Miguel Almunia (Institute for Fiscal Studies); David Henning (Oxford University); Justine Knebelmann (Sciences Po); Dorothy Nakyambadde (Uganda Revenue Authority); Lin Tian (INSEAD) |
| Date: | 2025–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:ifs:ifsewp:25/51 |
| By: | Bakker, Gerben |
| Abstract: | We identify a previously underappreciated data revolution starting in the 1960s, in which business information firms adopted ICT very early on to automate market data sales. Before this ‘terminal revolution’, securities firms could barely cope with the paperwork of growing trading volumes, forcing the NYSE to close on Wednesdays to allow them to catch up. The terminal revolution placed computer screens on every client’s desk, changed how data was accessed and acted on, and created virtual trading floors, foreshadowing almost all stages the internet would go through some three decades later. We focus on early entrant Reuters and late entrant Bloomberg, which came to dominate global market data provision, discussing other firms along the way. We find that theory on sunk costs and market structure (Sutton, 1998) can explain how the exploding market remained highly concentrated, despite many new entrants. We also find that financial and business news (subject to Arrow’s paradox) was a complement to data (not subject to Arrow’s paradox), and barely profitable by itself: only firms offering both financial news and data tended to survive. |
| Keywords: | news agencies; financial and business news; business information; Arrow's fundamental paradox of information; trading data terminals; exchange rates; stock prices; bond prices; commodity prices; precursors to internet; industrialisation of services; ICT productivity impact; Kenneth J. Arrow; business history |
| JEL: | L82 L86 N20 N72 N74 N82 N84 O33 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:129938 |
| By: | Brüll, Eduard (ZEW); Mäurer, Samuel (University of Mannheim); Rostam-Afschar, Davud (University of Mannheim) |
| Abstract: | We provide experimental evidence on how employers adjust expectations to automation risk in high-skill, white-collar work. Using a randomized information intervention among tax advisors in Germany, we show that firms systematically underestimate automatability. Information provision raises risk perceptions, especially for routine-intensive roles. Yet, it leaves short-run hiring plans unchanged. Instead, updated beliefs increase productivity and financial expectations with minor wage adjustments, implying within-firm inequality like limited rent-sharing. Employers also anticipate new tasks in legal tech, compliance, and AI interaction, and report higher training and adoption intentions. |
| Keywords: | belief updating, firm expectations, technology adoption, innovation, technological change, automation, artificial intelligence, expertise, labor demand, white collar jobs, training |
| JEL: | J23 J24 D22 D84 O33 C93 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18225 |
| By: | Goos, Maarten (Utrecht University); Salomons, Anna (Tilburg University); Scheer, Bas (CPB Netherlands Bureau for Economic Policy Analysis); Van den Berge, Wiljan (Utrecht School of Economics) |
| Abstract: | The rising incidence of alternative work arrangements, such as outsourcing, raises important questions about worker outcomes in such non-standard labor contracts. We study this question in the Netherlands, a country with a rapid rise in flexible labor contracts, using administrative employer-employee data from 2006--2019. To identify the causal impact of outsourcing, we take advantage of a legal arrangement called "patrolling", where workers hired by one firm are placed on a staffing firm's payroll while maintaining their job duties at the original firm. We find that outsourced workers experience worse labor market outcomes compared to a matched control group. These include persistently lower employment probability, lower hourly wage growth, a lower incidence of permanent contracts, and strikingly reduced pension contributions. This suggests that outsourcing erodes employment protection and job quality and leads to long-term scarring of labor market outcomes. |
| Keywords: | staffing companies, outsourcing, non-standard work arrangements, labor contracts |
| JEL: | J31 J32 J41 J42 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18228 |
| By: | Seth Benzell; Kyle Myers |
| Abstract: | An increasingly large number of experiments study the labor productivity effects of automation technologies such as generative algorithms. A popular question in these experiments relates to inequality: does the technology increase output more for high- or low-skill workers? The answer is often used to anticipate the distributional effects of the technology as it continues to improve. In this paper, we formalize the theoretical content of this empirical test, focusing on automation experiments as commonly designed. Worker-level output depends on a task-level production function, and workers are heterogeneous in their task-level skills. Workers perform a task themselves, or they delegate it to the automation technology. The inequality effect of improved automation depends on the interaction of two factors: ($i$) the correlation in task-level skills across workers, and ($ii$) workers' skills relative to the technology's capability. Importantly, the sign of the inequality effect is often non-monotonic -- as technologies improve, inequality may decrease then increase, or vice versa. Finally, we use data and theory to highlight cases when skills are likely to be positively or negatively correlated. The model generally suggests that the diversity of automation technologies will play an important role in the evolution of inequality. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.24923 |
| By: | Kee, Hiau Looi; Taglioni, Daria; Xie, Enze |
| Abstract: | This paper examines the roles of tariff and non-tariff measures in China’s meteoric rise as the world’s leading green product supplier. Evidence from customs transaction data from 2000 to 2016 shows that processing firms propelled the export surge, utilizing the expanding domestic material varieties due to trade liberalization benefiting their upstream suppliers. The substitution of domestic materials for imported materials raised the domestic value-added ratio of the processing firms and the exports of green products. A two-sector model rationalizes the empirical results. Trade policy liberalization, together with industrial policies, market scale, and synchronized global demand, contributed to China’s dominance. |
| Date: | 2025–10–23 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11240 |
| By: | Elliott Ash; Soumitra Shukla; Jason Sockin |
| Abstract: | Interviews allow employers to learn about workers, but do they also enable workers to learn about firms? Studying 500, 000 interview reports from Glassdoor, we find candidates for high-paying jobs are more likely to reject a job offer if they believe the interview was easy. Easy interviews appear to convey poor ``fit'' as those who accept offers after easy interviews are two-fifths of a standard deviation less satisfied with their jobs and 10 percent less likely to remain with their employer for at least one year. Analysis of interview narratives using large language models reveals difficult interviews signal colleague ability whereas easy interviews convey a nonselective process. In a small-scale randomized field experiment, an exogenous increase in difficulty elevated perceived difficulty and boosted applicant engagement with the vacancy. Interviews offer workers a preview of match quality, highlighting a channel through which labor markets may become less efficient if firms automate hiring with AI. |
| Keywords: | interviews, peer effects, job satisfaction, large language models |
| JEL: | J24 M50 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12229 |
| By: | Taglioni, Daria; Kee, Hiau Looi |
| Abstract: | As tariffs have declined, non-tariff measures (NTMs) have become central to trade policy, especially in high-income countries and regulated sectors like food and green technologies. Although NTMs may serve legitimate goals, they could also sort countries and firms into or out of markets based on compliance capacity and differences in product mix. Documenting recent advances in the estimation of ad valorem equivalents (AVEs), this paper uncovers new patterns of use and exposure of NTMs. High-income countries rely more heavily on NTMs relative to tariffs, while low- and middle-income countries face steeper AVEs on their exports. Firm-level evidence shows that NTMs disproportionately affect smaller firms, leading to market exit and concentration. Poorly designed NTMs can harm productivity and welfare, while coordinated, capacity-aware use can deliver inclusive outcomes. Policy design, transparency, and diagnostics must evolve to reflect the growing role—and risks—of NTMs in a fragmented global trade landscape. |
| Date: | 2025–10–22 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11236 |
| By: | Rishi R. Sharma; Joel Slemrod; Michael Stimmelmayr; John D. Wilson; Peter Choi |
| Abstract: | Dual-regime business tax systems typically subject smaller firms to an output (turnover) tax and larger firms to a profit (corporate) tax. Despite their prevalence, there is little formal analysis of their optimal design. This paper addresses this gap by developing a theoretical framework to analyze the optimal tax parameters and the relative performance of two types of dual-regime systems: threshold and minimum tax systems. We show that either type of dual regime system can yield lower social costs than a single regime system. Using parameter values from recent empirical studies, we also show that a generalized minimum tax system we propose would outperform other dual regime systems under most parameter values. These findings carry important policy implications, particularly as many countries currently employ either threshold or minimum tax systems, but none have yet implemented a generalized minimum tax. |
| JEL: | H25 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34418 |
| By: | Amior, Michael; Manning, Alan |
| Abstract: | If labour markets are competitive, migration can only affect native wages via marginal products. But under imperfect competition, migration may also increase wage mark-downs—if firms have greater monopsony power over migrants than natives, but cannot perfectly wage discriminate. While marginal products depend on relative labour supplies across skill cells, mark-downs depend on migrant concentration within them. This insight can help rationalise empirical violations of canonical migration models. Using US data, we conclude that migration does increase mark-downs: this expands aggregate native income, but redistributes it from workers to firms. Policies which constrain monopsony power over migrants can mitigate these adverse wage effects. |
| JEL: | J31 J42 J61 |
| Date: | 2025–10–21 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128735 |
| By: | Francesco Agostinelli; Domenico Ferraro; Giuseppe Sorrenti; Leonard Treuren |
| Abstract: | We ask to what extent the quantification of labor market power depends on the modeling of the long-term worker-firm employment relationship. We develop an oligopsony model with dynamic wage contracts. Workers decide whether and where to work, choosing among firms providing different amenities and solving a dynamic discrete choice labor supply problem with firm-specific human capital. As a result, firms optimally choose wage-tenure contracts to attract and retain workers. We find that such contracts mitigate firms' incentives to impose large instantaneous wage markdowns—compared to standard static wage-setting models—thereby reducing the share of socially inefficient worker-firm separations. As a consequence, we show that the empirical approaches based on "sufficient statistics" tend to overestimate the extent of labor market power: low levels of firm-specific labor supply elasticities do not necessarily indicate rent extraction, but instead reflect firms’ ability to retain workers by offering long-term value through human capital accumulation. |
| JEL: | J0 J42 L10 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34439 |
| By: | Snower, Dennis J. (University College London) |
| Abstract: | Whereas labor markets are traditionally viewed as machine-like environments – where agents, coordinated by price signals, solve constrained optimization problems or adhere to established heuristics – this paper views labor markets as human ecosystems, containing living things, namely, the human beings who participate in these markets. Living things adapt to their environment and evolve across their domains of life. Consequently, activities in labor markets cannot be understood independently of their social and political foundations. Labor markets are embedded in social, economic, political and environmental systems, and their adaptiveness to their social and natural environments. In this context, the insider-outsider theory may be generalized by reconceptualizing insiders and outsiders in terms of their relative adaptive advantages and the structural barriers to adaptation. The functions and misfunctions of adaptively embedded labor markets can be specified in terms of the adaptiveness as systems or the adaptiveness of the components of these systems. The ecosystemic approach also involves a reconceptualization of agents operating in labor markets, implying a new theories of the firm and workers. |
| Keywords: | evolution, embedded labor markets, insider-outsider theory, theory of the firm |
| JEL: | J0 J2 J6 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18202 |