nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2020‒01‒20
seventeen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Housing insecurity, homelessness and populism: Evidence from the UK By Fetzer, Thiemo; Sen, Srinjoy; Souza, Pedro CL
  2. Who are business owners and what are they doing? By Jonathan Cribb; Helen Miller; Thomas Pope
  3. The Role of Aggregators in Facilitating Industrial Demand Response: Evidence from Germany By Jan Stede; Karin Arnold; Christa Dufter; Georg Holtz; Serafin von Roon; Jörn C. Richstein
  4. Does Remote Work Improve or Impair Firm Labour Productivity? Longitudinal Evidence from Portugal By Natália P. Monteiro; Odd Rune Straume; Marieta Valente
  5. Protection without Protectionism? Foreign Investment Screening in Europe and the V4 Countries Today : A Comparative Analysis By Tamas Peragovics
  6. Why Some People Are Not As Happy As They Could Be: The Role of Unobservable Subjective Factors By AMENDOLA, Adalgiso; DELL'ANNO, Roberto; PARISI, Lavinia
  7. Long-run effects of health shocks in a highly regulated labour market By Belloni, Michele; Simonetti, Irene; Zantomio, Francesca
  8. Reading Performance and Math Performance of Second-Generation Children in Italy By Mariagrazia Cavallo; Giuseppe Russo
  9. Financial literacy and its influence on consumers’ internet banking behaviour By Panayiotis C. Andreou; Sofia Anyfantaki
  10. What is the Impact of Increased Business Competition? By Sonia Feliz; Chiara Maggi
  11. Crowdfunding a monthly income: an analysis of the membership platform Patreon By Tobias Regner
  12. Rising Concentration and Wage Inequality By Guido Matias Cortes; Jeanne Tschopp
  13. Central and Eastern Europe’s dependent development in German automotive value chains By Tamas Gerocs; Andras Pinkasz
  14. Economic Uncertainty and Fertility in Europe: Narratives of the Future By Daniele Vignoli; Raffaele Guetto; Giacomo Bazzani; Elena Pirani; Alessandra Minello
  15. Gender Differences in Equity Crowdfunding By Kovacs, Attila
  16. The Welfare Implications of Public Goods: Lessons from 10 years of Atkinson in the UK By Fred Foxton; Joe Grice; Richard Heys; James Lewis
  17. Public Service Motivation Antecedents: Testing the European Countries By AMENDOLA, Francesca

  1. By: Fetzer, Thiemo (University of Warwick); Sen, Srinjoy (University of Warwick); Souza, Pedro CL (University of Warwick)
    Abstract: Homelessness and precarious living conditions are on the rise across much of the Western world. This paper exploits exogenous variation in the affordability of rents due to a cut that substantially lowered housing benefit – a welfare benefit aimed at helping low income households pay rent. Before April 2011, local housing allowance covered up to the median level of market rents; from April 2011 onwards, only rents lower than the 30th percentile were covered. We exploit that the extent of cuts significantly depend on statistical noise due to estimation of percentiles. We document that the affordability shock caused a significant increase in: evictions; individual bankruptcies; property crimes; share of households living in insecure temporary accommodation; statutory homelessness and actual rough sleeping. The fiscal savings of the cut are much smaller than anticipated. We estimate that for every pound saved by the central government, council spending to meet statutory obligations for homelessness prevention increases by 53 pence. We further document political effects: the housing benefit cut causes lower electoral registration rates and is associated with lower turnout and higher support for Leave in the 2016 EU referendum, most likely driven by its unequal impact on the composition of those that engage with democratic processes.
    Keywords: housing markets, welfare cuts, austerity, voting JEL Classification: H2, H3, H5, P16, D72
    Date: 2019
  2. By: Jonathan Cribb; Helen Miller; Thomas Pope
    Abstract: Business owners have been the fastest-growing part of the UK labour force since at least 2000. Between 2000–01 and 2015–16, the number of employees grew by 15%, while selfemployment (including those operating as a sole trader or as a partner in a partnership) grew by 25% and the number of directors of companies with at most two directors more than doubled. The number of new businesses created in the UK between 2007–08 and 2015–16 was higher than in any other OECD country. This is an important labour market trend and is often hailed as a success because small businesses and start-ups are commonly viewed as the engines of growth. This is questionable in light of evidence that the UK has a long tail of low-productivity firms. However, to date, our understanding of business owners has been limited because they are not well captured in traditional survey data sources. Learning more about this group is crucial for understanding labour market trends better and informing public policy as it relates to business owners. In this report, we use the universe of business owners’ administrative tax records provided by HM Revenue and Customs (HMRC) to learn more about business owners and their businesses than has previously been possible using survey data. Specifically, using these data, this report documents the numbers, characteristics, incomes and business activities of business owner-managers in the UK. We track the same business owners over time – something that has not been possible before – and use this to analyse patterns of business start-up and closure and to explain substantial falls in sole trader incomes since 2008
    Keywords: self-employment, business ownership, entrepreneurship
    JEL: L26 J21 J31
    Date: 2019–08
  3. By: Jan Stede; Karin Arnold; Christa Dufter; Georg Holtz; Serafin von Roon; Jörn C. Richstein
    Abstract: Industrial demand response can play an important part in balancing the intermittent production from a growing share of renewable energies in electricity markets. This paper analyses the role of aggregators – intermediaries between participants and the electricity market – in facilitating industrial demand response. Based on the results from semi-structured interviews with German demand response aggregators, as well as a wider stakeholder online survey, we examine the role of aggregators in overcoming barriers to industrial demand response. We find that a central role for aggregators is to raise awareness for the potentials of demand response, as well as to support implementation by engaging key actors in industrial companies. Moreover, we develop a taxonomy that helps analyse how the different functional roles of aggregators create economic value. We find that there is considerable heterogeneity in the kind of services that aggregators offer, many of which do create significant economic value. However, some of the functional roles that aggregators currently fill may become obsolete once market barriers to demand response are reduced or knowledge on demand response becomes more diffused.
    Keywords: Aggregator, demand response, barriers, function, roles, industry, interview
    JEL: D22 L23 Q40 Q41
    Date: 2020
  4. By: Natália P. Monteiro; Odd Rune Straume; Marieta Valente
    Abstract: Whether or not the use of remote work increases firm labour productivity is theoretically ambiguous. We use a rich and representative sample of Portuguese firms, and within-firm variation in the policy on remote work, over the period 2011-2016, to empirically assess the causal productivity effect of remote work. Our findings from estimations of models with firm-fixed effects suggest that the average productivity effect of allowing remote work is significantly negative, though relatively small in magnitude. However, we also find a substantial degree of heterogeneity across different categories of firms. In particular, we find evidence of opposite effects of remote work for firms that do not undertake R&D activities and for firms that do, where remote work has a significantly negative (positive) effect on labour productivity for the former (latter) type of firms. Negative effects of remote work are also more likely for small firms that do not export and employ a workforce with a below-average skill level.
    Keywords: remote work, firm labour productivity, panel data
    JEL: D24 L23 M54
    Date: 2019
  5. By: Tamas Peragovics (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: European governments have shown growing interest in investment screening mechanisms in order to restrain access of non-EU investors to strategically sensitive industries. Most of this interest comes as recent high-profile takeovers by Chinese companies are increasingly perceived as detrimental for national security. While the practice of screening investments is not new, the strengthening of regulatory oversight in major European countries like the UK and Germany indicates a more challenging investment landscape for non-EU investors like Chinese companies. The EU also adopted a new framework to screen foreign investments, but it relies primarily on member state input and cannot veto actual acquisition plans on behalf of the community. While Slovakia has no dedicated investment screening mechanism, Czechia is in the legislative process of establishing one. Poland and Hungary, with generally similar screening processes, differ in their respective relations with China, spelling doubt over potential foreign and investment policy cooperation in the V4. This working paper provides an analysis of recent developments in investment screening regulations in Europe, with a special focus on the V4 countries.
    Keywords: FDI, investment screening, national security, V4
    JEL: F21 P33 P45 E61 O52
    Date: 2019–05
  6. By: AMENDOLA, Adalgiso (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy); DELL'ANNO, Roberto (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy); PARISI, Lavinia (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy)
    Abstract: This paper investigates the relative importance of unobservable subjective factors (i.e., genetic, personality, cognitive traits) on happiness. We apply a residual-based approach to distinguish between the direct and indirect effects of unobservable subjective traits on happiness. We refer to the “indirect” effects as the effects of unobservable variables on happiness mediated by social, economic and family factors. We find that these “indirect” effects only explain approximately 25% of the happiness variation at the individual level, while unobserved (i.e. genetic and personality) traits may explain up to 75% of the differences in happiness. We also find that socioeconomic, demographical and institutional factors better explain the variance of happy versus unhappy people. The empirical analysis is based on the European Quality of Life Survey dataset.
    Keywords: Happiness; Unobservable traits; Subjective well-being; Unhappiness; Genes
    JEL: A12 D91 I31
    Date: 2020–01–13
  7. By: Belloni, Michele; Simonetti, Irene; Zantomio, Francesca (University of Turin)
    Abstract: Based on administrative data covering employment, social security and hospital record histories, we investigate the effect of acute cardiovascular health shocks resulting in unplanned hospitalisation, on blue collars’ long-term labour outcomes in Italy. The Italian institutional setting, characterised by a highly regulated labour market and high job protection, is different from that of countries - mainly Nordic and Anglo-Saxon -covered in previous studies. We apply matching and parametric regression techniques to remove possible bias arising from observable and time-invariant unobservable confounders. Results point at sizeable and persistent reductions in employment and labour income, while hours and wage adjustments appear limited. Whereas a relatively generous social insurance system might compensate the earnings loss, our findings question the appropriateness of existing labour inclusion policies.
    Date: 2019–11
  8. By: Mariagrazia Cavallo (University of Bristol and Università di Salerno); Giuseppe Russo (Università di Salerno, CSEF and GLO)
    Abstract: This paper studies the effect of language proficiency on Math achievement for ten-year-old second-generation children in Italy. Through an IV given by the interaction between age and linguistic distance, we find that a higher score in Italian reduces the score in Math. This outcome is led by children with insufficient command of Italian (namely, those whose reading score is below 95% of the natives' average) and suggests that these students can improve their Italian only at the cost of reducing their performance in other subjects. This delay in language acquisition may undermine equality of opportunities from childhood.
    Keywords: Second generations, language, math performance, linguistic distance, instrumental variable
    JEL: I21 I24 Z13
    Date: 2020–01–13
  9. By: Panayiotis C. Andreou (Cyprus University of Technology and Durham University); Sofia Anyfantaki (Bank of Greece and Athens University of Economics and Business)
    Abstract: This study examines the level and antecedents of financial literacy and investigates its influence on consumers’ internet banking behaviour. The focus is on Cyprus, a country that experienced an unprecedented financial crisis in 2013 that caused an enormous shrinkage of the banking sector. Ever since then, banks have been investing in financial innovations, such as internet banking (i-banking), aiming to enhance customer service and efficiency in the age of financial digitalization. Notwithstanding, the results show that financial literacy is yet too low in Cyprus, whereby only 37.33% of the study’s survey adults have a good financial knowledge proficiency level. The results indicate that financially literate consumers show a strong preference for frequent use of i-banking, whereby the odds of using i-banking frequently are increased by more than 64% for one standard deviation increase in the respondents’ financial knowledge score. The findings highlight the crucial interplay of digital and financial sophistication, and their positive influence on consumers’ usage of digital financial services. The evidence from Cyprus also points to policy directions according to which digital financial education programs should be a central element in national financial literacy strategies.
    Keywords: financial literacy; internet banking; digital literacy; financial education; national strategy.
    JEL: D14 D91 G21
    Date: 2019–12
  10. By: Sonia Feliz; Chiara Maggi
    Abstract: This paper studies the macroeconomic effect and underlying firm-level transmission channels of a reduction in business entry costs. We provide novel evidence on the response of firms' entry, exit, and employment decisions. To do so, we use as a natural experiment a reform in Portugal that reduced entry time and costs. Using the staggered implementation of the policy across the Portuguese municipalities, we find that the reform increased local entry and employment by, respectively, 25% and 4.8% per year in its first four years of implementation. Moreover, around 60% of the increase in employment came from incumbent firms expanding their size, with most of the rise occurring among the most productive firms. Standard models of firm dynamics, which assume a constant elasticity of substitution, are inconsistent with the expansionary and heterogeneous response across incumbent firms. We show that in a model with heterogeneous firms and variable markups the most productive firms face a lower demand elasticity and expand their employment in response to increased entry.
    Date: 2019–12–13
  11. By: Tobias Regner (FSU Jena)
    Abstract: Membership platforms allow creators to crowdfund a monthly income, while campaigns on conventional reward crowdfunding portals aim to reach a specified funding target within a pre-set period. We study transaction-level data from Patreon, the biggest membership platform, to gain insights about behavioral patterns at this emerging type of crowdfunding. Our analysis shows that hundreds of creators crowdfund a sizable income (more than $2,500 monthly). We also find that measures of communication quality are determinants of project success, in line with the related literature. Funding dynamics - pledges as well as deletions - are heterogeneous across campaigns. Our analysis suggests that the option to delete the monthly pledge to a creator at any time serves as a feedback mechanism. We conclude that crowdfunding a monthly income offers the creative class a viable alternative to advertising-based business models.
    Keywords: crowdfunding, Patreon, funding dynamics, cultural goods, membership platform
    JEL: D90 G23 L26 L82 L86
    Date: 2020–01–06
  12. By: Guido Matias Cortes; Jeanne Tschopp
    Abstract: Wage inequality has risen in many countries over recent decades. At the same time, production has become increasingly concentrated in “superstar” firms. In this paper, we show that these two phenomena are linked. Theoretically, we show that shocks that increase concentration, such as an increase in consumers’ price sensitivity, will also lead to an increase in wage dispersion between firms. Empirically, we use industry-level data from 14 European countries over the period 1999–2016 and show robust evidence of a positive and statistically significant correlation between concentration and the dispersion of firm-level wages.
    Date: 2019–11
  13. By: Tamas Gerocs (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Andras Pinkasz (Hungarian Central Statistical Office)
    Abstract: For several decades, the German automotive industry has been under mounting pressure to reorganize its production processes and its modes of value-chain governance. In this paper, we analyze the effects this restructuring has had on the economic development of the Central and Eastern European countries that have specialized in automotive production during the capitalist transition. We focus on two global market forces: the standardization of the production of electric engines and the changing patterns of international trade regulation, mostly under the German neo-mercantilist trade regime. Our hypothesis is that structures of dependent development are reproduced by the forms of vertical specialization that have emerged in the automotive industry in these countries. To prove this, we combine the theory of global value chains with Vernon’s product life-cycle theory.
    Keywords: core-periphery, dependent development, global automotive value chains, product life cycle, relocation, vertical specialization
    JEL: B5 F6 F4 L6 P1 N1
    Date: 2019–05
  14. By: Daniele Vignoli (Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti", Università di Firenze); Raffaele Guetto (Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti", Università di Firenze); Giacomo Bazzani (Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti", Università di Firenze); Elena Pirani (Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti", Università di Firenze); Alessandra Minello (Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti", Università di Firenze)
    Abstract: BACKGROUND: In the last decade fertility rates have declined in most European countries, and explanations have tended to focus on the rise of economic uncertainty after the Great Recession. The empirical demographic tradition operationalized the forces of economic uncertainty through objective indicators of individuals’ labor market situation; for example, holding a temporary contract or being unemployed. However, contemporary European fertility trends are not comprehensively captured by these traditional indicators and statistical models, because fertility decisions are not a mere “statistical shadow of the past†. OBJECTIVE: We propose a novel framework on economic uncertainty and fertility. This framework proffers that the conceptualization and operationalization of economic uncertainty needs to take into account that people use works of imagination, producing their own “narrative of the future†– namely, imagined futures embedded in social elements and their interactions. Narratives of the future allow people to act according to or in spite of the uncertainty they face, irrespective of structural constraints and their subjective perceptions. CONTRIBUTION: In this reflection we suggest that the focus of contemporary fertility studies should partly shift to assessing how people build their narratives of the future. To this end, we propose several methodological strategies to empirically assess the role of narratives for fertility decisions. Future studies should also take into account that personal narratives are shaped by the “shared narratives†produced by several agents of socialization, such as parents and peers, as well as by the narratives produced by the media and other powerful opinion formers.
    Keywords: Fertility; Economic Unvertainty; Narratives of the Future
    JEL: J13
    Date: 2020–01
  15. By: Kovacs, Attila
    Abstract: Online peer-to-peer investment platforms are increasingly popular venues for entrepreneurs and investors to engage in financial transactions without the involvement of banks and loan managers. Despite their purported transparency and lack of bias, it is unclear whether social inequalities present in traditional capital markets transfer to these platforms as well, impeding their hoped revolutionary potential. In this paper we analyze nearly four years’ worth of data from one of the leading UK-based equity crowdfunding platforms. Specifically, we investigate gender-related differences in patterns of entrepreneurship, investment, and success. In agreement with offline trends, men have more activity on the platform. Yet, women entrepreneurs benefit of higher success rates in fundraising, a finding that mimics trends seen on some rewardsbased crowdfunding platforms. Surprisingly, we also find that female investors tend to choose campaigns that have lower success rates. Our findings contribute to a better understanding of gender-related discrepancies in success on the online capital market and point to differences in activity that are key factors in the apparent patterns of gender inequality.
    Date: 2018–11–07
  16. By: Fred Foxton; Joe Grice; Richard Heys; James Lewis
    Abstract: When considering issues of measuring welfare beyond GDP, a key ongoing but unfinished agenda is to how to measure the outputs of goods and services which are free at the point of delivery, for the purposes of national accounts. Public services such as schools and health services are the major example of this kind. Over a decade ago, Sir Tony Atkinson provided a principled framework for this end. Consistent with the basic principles of national accounting, he advocated an approach by which this output should be measured as the value added by the services concerned. This value, in turn, equated to the improvement in outcomes directly attributable to the activities of the public services concerned. Implementing this approach, as he recognised, is by no means straightforward, but the UK experience recounted above shows that strong progress can be made. Working with experts and practitioners, quantity and quality measures can be identified and used to give a good approximation to the value added by the key public services, and thus their contribution to GDP. New data and intelligent use of existing data means this can be done at low cost and in a way which maximises stakeholder understanding and acceptance. But national statistical institutes are also now grappling with a second task; measuring changes in welfare or wellbeing more generally, regardless of how they are generated. Health outcomes - life expectancy, for example, or healthy life expectancy – are influenced by a variety of factors besides publicly funded health services: diet, smoking prevalence and other lifestyle choices are obvious determinants. So, the central tasks under this agenda become firstly the identification of appropriate measures of outcome changes, secondly determining how much value our societies place on those changes, and thirdly to understand the relationship between the impact of the public service and other factors on the headline outcome measures.
    Keywords: Public Services, Atkinson review, Welfare gains, Publicly funded, Quality, adjustment, Public service outcomes, QALY,
    JEL: H50 H75 H83 I18 I28 P35
    Date: 2019–07
  17. By: AMENDOLA, Francesca (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy)
    Abstract: Public Service Motivation (PSM) has been defined as “an individual predisposition torespond to motives grounded primarily or uniquely in public institutions or organizations” (Perry, 1990). So far, most of the scholars focused on the definition and measurement of the construct, overlooking its determinants. What is that really moves public servants?In the last decade, only a small strand of the research focused purely on the antecedents of PSM (e.g. Perry, 1997; Moynihan & Pandey, 2007; Camilleri, 2007) and, even if the results are generally consistent across samples (Perry et al., 2008), the very little number of studies does not allow a generalization. The aim of this work is to move the focus of the PSM literature back to the origins of the construct. Specifically, we test the most important PSM antecedents in 10 countries of West Europe, giving as granted that in this area there is a similar socio-historical background. In order to identify PSM antecedents and, at the same time, to deepen the definition and measurement of the construct, we use a MIMIC model (Multiple Indicators Multiple Causes) that allows estimating the PSM as a latent construct and, at the same time, to identify exogenous cause variables affecting it
    Keywords: Public Service Motivation; Organizational Behaviour; Structural Equation Modeling
    JEL: C38 H19 H83
    Date: 2019–12–13

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