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on Business Economics |
| By: | Julien Champagne; André Kurmann |
| Abstract: | This paper documents that over the past 25 years, aggregate hourly real wages in the United States have become substantially more volatile relative to output. We use micro-data from the Current Population Survey (CPS) to show that this increase in relative volatility is predominantly due to increases in the relative volatility of hourly wages across different groups of workers. Compositional changes, by contrast, account for at most 12% of the increase in relative wage volatility. Using a Dynamic Stochastic General Equilibrium (DSGE) model, we show that the observed increase in relative wage volatility is unlikely to come from changes outside of the labor market (e.g. smaller exogenous shocks or more aggressive monetary policy). By contrast, increased flexibility in wage setting is capable of accounting for a large fraction of the observed increase in relative wage volatility. At the same time, increased wage flexibility generates a substantial decrease in the magnitude of business cycle fluctuations, which suggests a promising new explanation for the Great Moderation. |
| Keywords: | Wage volatility, business cycles, great moderation, current population survey, dynamic stochastic general equilibrium models |
| JEL: | E24 E32 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1010&r=bec |
| By: | Jean-Pierre Zigrand; Hyun Song Shin; Jon Danielsson |
| Abstract: | Risk is endogenous. Equilibrium risk is the fixed point of the mapping that takes perceived risk to actual risk. When risk-neutral traders operate under Value-at-Risk constraints, market conditions exhibit signs of fluctuating risk appetite and amplification of shocks through feedback effects. Correlations in returns emerge even when underlying fundamental shocks are independent. We derive a closedform solution of equilibrium returns, correlation and volatility by solving the fixed point problem in closed form. We apply our results to stochastic volatility and option pricing. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp647&r=bec |
| By: | Addison, John T. (University of South Carolina); Bryson, Alex (National Institute of Economic and Social Research); Teixeira, Paulino (University of Coimbra); Pahnke, André (IAB, Nürnberg) |
| Abstract: | This paper presents the first comparative analysis of the decline in collective bargaining in two European countries where that decline has been most pronounced. Using workplace-level data and a common model, we present decompositions of changes in collective bargaining and worker representation in the private sector in Germany and Britain over the period 1998-2004. In both countries within-effects dominate compositional changes as the source of the recent decline in unionism. Overall, the decline in collective bargaining is more pronounced in Britain than in Germany, thus continuing a trend apparent since the 1980s. Although workplace characteristics differ markedly across the two countries, assuming counterfactual values of these characteristics makes little difference to unionization levels. Expressed differently, the German dummy looms large. |
| Keywords: | behavioral and composition effects, patterns of erosion, worker representation, union coverage, union recognition, shift share analysis |
| JEL: | J50 J51 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4760&r=bec |
| By: | Akinobu Shuto (Research Institute for Economics and Business Administration, Kobe University); Norio Kitagawa (Graduate School of Business Administration, Kobe University) |
| Abstract: | We examine the effect of managerial ownership on the cost of debt as measured by the interest rate spread on corporate bonds for Japanese firms. First, we find that the managerial ownership is positively associated with interest rate spread after controlling for the other Japanese ownership structure, cross-shareholding and the stable shareholdings by financial institutions. Second, by employing factor analysis to measure the agency cost of debt based on financial variables,we also find that managerial ownership has higher correlation with interest rate spread when the agency cost of debt at the time of bond issue is already larger. The results are robust to additional analyses, including the possibility of non-linear relationship, bond rating, endogeneity problem, and Fama and Macbeth (1973) approach. Our results suggest that prospective bondholders use managerial ownership information to anticipate a firm's future agency cost of debt, and estimate it higher when the current agency cost of debt at issuing bond is already larger. Our results also suggest that accounting information is useful to estimate the agency cost of debt and increase the efficiency of bond contracting. Finally, although previous studies are often prone to emphasizing the findings on the Japanese unique ownership structure, our results reveal that traditional agency theory on managerial ownership is apply to Japanese bond market, which is consistent with the findings of U.S. firms. |
| Keywords: | managerial ownership; agency cost of debt; bond yield spread. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2010-05&r=bec |
| By: | Kimberly Beaton |
| Abstract: | TThis article investigates the stability of Okun's law for Canada and the United States using a time varying parameter approach. Time variation is modeled as driftless random walks and is estimated using the median unbiased estimator approach developed by Stock and Watson (1998). Okun's law exhibits structural instability in both countries, with the sensitivity of the unemployment rate to movements in output growth increasing recently over time in both Canada and the United States. |
| Keywords: | Business fluctuations and cycles; Labour markets |
| JEL: | E24 J00 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:10-7&r=bec |
| By: | Kulich, C.; Trojanowski, G.; Ryan, M.; Haslam, S.A.; Renneboog, L.D.R. (Tilburg University, Center for Economic Research) |
| Abstract: | This paper offers a new explanation of the gender pay gap in leadership positions by examining the relationship between managerial bonuses and company performance. Drawing on findings of gender studies, agency theory, and the leadership literature, we argue that the gender pay gap is a context-specific phenomenon which results partly from the fact that company performance has a moderating impact on pay inequalities. Employing a matched sample of 192 female and male executive directors of UK listed firms we corroborate the existence of the gender pay disparities in corporate boardrooms. In line with our theoretical predictions, we find that bonuses awarded to men are not only larger than those allocated to women, but also that managerial compensation of male executive directors is much more performance-sensitive than that of female executives. The contribution of attributional and expectancy-related dynamics to these patterns is highlighted in line with previous work on gender stereotypes and implicit leadership theories such as the romance of leadership. Gender differences in risk-taking and confidence are also considered as potential explanations for the observed pay disparities. The implications of organizations’ indifference to women’s performance are examined in relation to issues surrounding the recognition and retention of female talent. |
| Keywords: | executive compensation;gender pay gap;gender stereotypes;implicit leadership theories;corporate performance;romance of leadership |
| JEL: | J31 J33 M52 G30 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:201002&r=bec |
| By: | Köhler, Matthias |
| Abstract: | This paper gives an overview over corporate governance and banking regulation in Germany. Particular attention is put on legal and regulatory changes that were made in response to the financial market crisis. The paper shows that the changes mainly focus on the remuneration of managers and on further professionalizing the supervisory board. Problematic is that several laws that were enacted in the past years to improve corporate governance focus on listed firms. Furthermore, some of the recommendations and suggestions made to improve corporate governance in Germany are not legally binding even for stock corporations. Recent empirical evidence, moreover, suggests that bank shareholders pushed for greater risk-taking and not managers. This contrast with public view that the bank managers are pushed by aggressive remunerations schemes to increase risk-taking and indicates that the recent legal and regulatory changes fail to remove all weaknesses of the German corporate governance system. -- |
| Keywords: | Corporate governance,banks,regulation,remuneration schemes,supervisory board |
| JEL: | G21 G34 G38 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:10002&r=bec |
| By: | Robert C. Feenstra; David E. Weinstein |
| Abstract: | This paper is the first attempt to structurally estimate the impact of globalization on markups and welfare in a monopolistic competition model. To achieve this, we work with a class of preferences that allow for endogenous markups and firm entry and exit that are especially convenient for empirical work – the translog preferences, with symmetry in substitution imposed across products. Between 1992 and 2005 we find the U.S. market experienced a series of changes that confirm the predictions of Melitz and Ottaviano (2008): import shares rose and U.S. firms exited, leading to a fall in markups, while product variety and welfare went up. We estimate the impacts of these effects on a national level, and find a cumulative drop of 5.4 percent in merchandise prices and of 1.0 percent in overall consumer prices between 1992 and 2005. Although the magnitude of the welfare gains in our translog setup is similar to that obtained by assuming CES preferences, the sources of these gains are quite different. Variety gains under translog are at least one-third smaller than in the CES case, but there is a substantial reduction in U.S. markups, resulting in a comparable welfare gain overall. |
| JEL: | E31 F12 F4 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15749&r=bec |
| By: | Alberto F. Alesina; Yann Algan; Pierre Cahuc; Paola Giuliano |
| Abstract: | Flexible labor markets require geographically mobile workers to be efficient. Otherwise, firms can take advantage of the immobility of workers and extract monopsony rents. In cultures with strong family ties, moving away from home is costly. Thus, individuals with strong family ties rationally choose regulated labor markets to avoid moving and limiting the monopsony power of firms, even though regulation generates lower employment and income. Empirically, we do find that individuals who inherit stronger family ties are less mobile, have lower wages, are less often employed and support more stringent labor market regulations. There are also positive cross-country correlations between the strength of family ties and labor market rigidities. Finally, we find positive correlations between labor market rigidities at the beginning of the twenty first century and family values prevailing before World War II, which suggests that labor market regulations have deep cultural roots. |
| JEL: | J2 K2 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15747&r=bec |
| By: | Hall, Bronwyn H. (UNU-MERIT, Maastricht University, Institute of Fiscal Studies, University of California-Berkeley, and NBER); Lerner, Josh (Harvard Business School, and NBER) |
| Abstract: | Evidence on the "funding gap" for investment innovation is surveyed. The focus is on financial market reasons for underinvestment that exist even when externality-induced underinvestment is absent. We conclude that while small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital, the evidence for high costs of R&D capital for large firms is mixed. Neverthless, large established firms do appear to prefer internal funds for financing such investments and they manage their cash flow to ensure this. Evidence shows that there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets for VC exit are not highly developed. We conclude by suggesting areas for further research. |
| Keywords: | innovation, R&D, financing, liquidity constraints, venture capital, cash flow |
| JEL: | G24 G32 O32 O38 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2010012&r=bec |
| By: | Eijffinger, S.C.W. (Tilburg University) |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ner:tilbur:urn:nbn:nl:ui:12-3763054&r=bec |
| By: | Martins, Pedro S. (Queen Mary, University of London); Solon, Gary (Michigan State University); Thomas, Jonathan P. (University of Edinburgh) |
| Abstract: | In models recently published by several influential macroeconomic theorists, rigidity in the real wages that firms pay newly hired workers plays a crucial role in generating realistically large cyclical fluctuations in unemployment. There is remarkably little evidence, however, on whether employers' hiring wages really are invariant to business cycle conditions. We review the small empirical literature and show that the methods used thus far are poorly suited for identifying employers’ wage practices. We propose a simpler and more relevant approach – use matched employer/employee longitudinal data to identify entry jobs and then directly track the cyclical variation in the real wages paid to workers newly hired into those jobs. We illustrate the methodology by applying it to data from an annual census of employers in Portugal over the period 1982-2007. We find that real entry wages in Portugal over this period tend to be about 1.8 percent higher when the unemployment rate is one percentage point lower. Like most recent evidence on other aspects of wage cyclicality, our results suggest that the cyclical elasticity of wages is similar to that of employment. |
| Keywords: | real wage cyclicality, entry wages, matched employer-employee data |
| JEL: | E24 J31 E32 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4757&r=bec |
| By: | Giuseppe Moscarini (Cowles Foundation, Yale University); Fabien Postel-Vinay (University of Bristol and Paris School of Economics) |
| Abstract: | We analyze a stochastic equilibrium contract-posting model. Firms post employment contracts, wages contingent on all payoff-relevant states. Aggregate productivity is subject to persistent shocks. Both employed and unemployed workers search randomly for these contracts, and are free to quit at any time. An equilibrium of this contract-posting game is Rank-Preserving [RP] if larger firms offer a larger value to their workers in all states of the world. We show that every equilibrium is RP, and equilibrium is unique, if firms differ either only in their initial size, or also in their fixed idiosyncratic productivity but more productive firms are initially larger, in which case turnover is always efficient, as workers always move from less to more productive firms. The RP equilibrium stochastic dynamics of firm size provide an explanation for the empirical finding that large employers are more cyclically sensitive (Moscarini and Postel-Vinay, 2009). RP equilibrium computation is tractable, and we simulate calibrated examples. |
| Keywords: | Equilibrium job search, Dynamic contracts, Stochastic dynamics |
| JEL: | J64 J31 D86 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1754&r=bec |
| By: | Mosthaf, Alexander; Schnabel, Claus; Stephani, Jens |
| Abstract: | Using representative linked employer-employee data of the German Federal Employment Agency, this paper shows that just one out of seven full-time employees who earned low wages (i.e. less than two-thirds of the median wage) in 1998/99 was able to earn wages above the low-wage threshold in 2003. Bivariate probit estimations with endogenous selection indicate that upward wage mobility is higher for younger and better qualified low-wage earners, whereas women are substantially less successful. We show that the characteristics of the employing firm also matter for low-wage earners’ probability of escaping low-paid work. In particular small plants and plants with a high share of low-wage earners often seem to be dead ends for low-wage earners. The likelihood of leaving the low-wage sector is also low when staying in unskilled and skilled service occupations and in unskilled commercial and administrational occupations. Consequently, leaving these dead-end plants and occupations appears to be an important instrument for achieving wages above the low-wage threshold. ; Mit repräsentativen verbundenen Arbeitgeber-Arbeitnehmer-Daten der Bundesagentur für Arbeit verdeutlicht diese Studie, dass nur jeder siebte Vollzeitbeschäftigte, der 1998/99 einen Niedriglohn (von weniger als zwei Dritteln des Medianlohns) bezog, bis 2003 den Niedriglohnsektor verlassen konnte. Bivariate Probit-Schätzungen mit endogener Selektion deuten darauf hin, dass die Aufwärtsmobilität für jüngere und besser qualifizierte Geringverdiener höher ausfällt, wohingegen Frauen deutlich weniger erfolgreich sind. Wir zeigen, dass auch die Merkmale des Beschäftigungsbetriebes die Aufstiegswahrscheinlichkeit beeinflussen. Insbesondere kleinere Betriebe und solche mit einem hohen Anteil von Niedriglohnbeschäftigten scheinen häufig Sackgassen für Geringverdiener darzustellen. Die Wahrscheinlichkeit, den Niedriglohnsektor zu verlassen, ist ferner relativ gering, wenn man in bestimmten (meist weniger qualifizierten) Jobs verharrt. Die Abwanderung aus solchen Betrieben und Beschäftigungen, die Sackgassen darstellen, dürfte deshalb ein wichtiges Mittel sein, um höhere Löhne zu erzielen. -- |
| Keywords: | low-wage employment,wage mobility,Germany |
| JEL: | J30 J60 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwqwdp:012010&r=bec |
| By: | Ours, J.C. van; Stoeldraijer, L. (Tilburg University, Center for Economic Research) |
| Abstract: | Previous empirical studies on the effect of age on productivity and wages find contradicting results. Some studies find that if workers grow older there is an increasing gap between productivity and wages, i.e. wages increase with age while productivity does not or does not increase at the same pace. However, other studies find no evidence of such an age related pay-productivity gap. We perform an analysis of the relationship between age, wage and productivity using a matched worker-firm panel dataset from Dutch manufacturing covering the period 2000-2005. We find little evidence of an age related pay-productivity gap. |
| Keywords: | age;wage;productivity |
| JEL: | J23 J31 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:201012&r=bec |
| By: | Gete, Pedro |
| Abstract: | This paper makes a theoretical and an empirical contribution to the debate on what caused the "global imbalances". On the empirical side, I provide different types of evidence to support that housing demand shocks (shocks to the aggregate marginal rate of substitution between housing and tradables) help to explain the global imbalances. On the theory side, I show that shocks to the demand for housing generate trade deficits without need for the standard ingredients used by others to model housing (wealth effects or trade in capital goods). I model housing as a durable and nontradable good. Countries import tradable goods during periods when more domestic labor is devoted to produce nontradables to smooth consumption between tradables and nontradables. Housing booms are larger if the country can run a trade deficit because the deficit lowers the opportunity cost of building, which is the foregone consumption of tradable goods due to reallocation of labor to the construction sector. Concerning the empirical evidence, I first document that over the last decade there has been a strong cross-country correlation between housing variables and current account dynamics. Second, I show that using the cross-country dynamics of employment in construction as the explanatory variable, the model generates current account dynamics matching recent global imbalances. Finally, I use sign restrictions implied by the model to estimate a vector autoregression and identify the effects of housing demand shocks on the U.S. trade deficit. The results suggest that housing shocks matter for current account dynamics. |
| Keywords: | Housing; Current Account; Global Imbalances; Sign Restrictions; Two Country Models; Two Sector Models |
| JEL: | F4 E2 F3 E4 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20957&r=bec |
| By: | Chen, Yutian; Sen, Debapriya |
| Abstract: | Economies of scale in upstream production can lead both disintegrated downstream firms as well as its vertically integrated rival to outsource offshore for intermediate goods, even if offshore production has moderate cost disadvantage compared to in-house production of the vertically integrated firm. |
| Keywords: | Outsourcing; Economies of Scale |
| JEL: | L11 L13 D43 |
| Date: | 2010–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20763&r=bec |
| By: | Robert G. Fichman; Nigel P. Melville |
| Abstract: | Prior work on information technology (IT) adoption and economic impacts typically employs an instrumental logic in which firms lead with innovation when they possess characteristics that make it economically beneficial to do so and lag when they do not. However, firms may deviate from this idealized picture when they possess characteristics of an innovation laggard but exhibit the behavior of an innovation leader (or vice versa), with implications for the returns to IT investment. This study develops a conceptual framework and hypotheses regarding the implications of such deviations, which we call innovation misfits. Using a data set comprising measures of the adoption of electronic networking technologies (ENT) in over 25,000 U.S. manufacturing plants, productivity regression estimation reveals a consistent pattern that the association between IT and productivity is diminished in the presence of innovation misfit. We discuss the implications of innovation misfit for scholarship and management practice, which are numerous. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:10-03&r=bec |
| By: | Rodolfo Apreda |
| Abstract: | This research paper sets forth that an alternative for managing the internal investment fund of any company, lies on separation portfolios. Firstly, the company’s internal investment portfolio is built up within the context of the incremental cash-flow model. Next, separation portfolios are introduced and consequential features for this paper are predicated upon them: firstly, they provide an easier framework for risk-management; secondly, their risk-return profile bring about a down-to-earth performance benchmark. Afterwards, the internal investment portfolio is mapped out like a distinctive separation portfolio. Lastly, pragmatic consequences and some corporate governance advantages of this financial engineering will follow. |
| Keywords: | separation portfolios, portfolio management, incremental cash-flow model, corporate governance, internal investment fund, risk metrics |
| JEL: | G11 G34 G32 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:416&r=bec |
| By: | Mendicino, Caterina; Lambertini, Luisa; Punzi , Maria Teresa |
| Abstract: | This paper analyzes housing market boom-bust cycles driven by changes in households'expectations. We explore the role of expectations not only on productivity but on several other shocks that originate in the housing market, the credit market and the conduct of monetary policy. We find that, in the presence of nominal rigidities, expectations on both the conduct of monetary policy and future productivity can generate housing market boom-bust cycles in accordance with the empirical findings. Moreover, expectations of either a future reduction in the policy rate or a temporary increase in the central bank's inflation target that are not fulfilled generate a macroeconomic recession. Increased access to credit generates a boom-bust cycle in most variables only if it is expected to be reversed in the near future. |
| Keywords: | Credit Frictions; Boom-Bust Cycles; News Shocks; Housing Prices. |
| JEL: | E32 E52 E44 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20776&r=bec |
| By: | Wälti, Sébastien |
| Abstract: | The decoupling hypothesis is the idea that business cycles in emerging market economies have become more independent from business cycles in advanced economies in recent years. Decoupling essentially amounts to a structural break in the degree of business cycle interdependence between the two groups of economies, and it can be tested as such. We develop an innovative measure of business cycle interdependence based on the Euclidean distance, available at the annual frequency, which allows for a proper test for a structural break in a graphical setup. We also make use of a standard econometric test. Both approaches point to the same conclusion: there has been no decoupling in recent years. In fact, the degree of business cycle interdependence has become stronger. |
| Keywords: | business cycle; synchronisation; globalisation; decoupling; emerging markets |
| JEL: | F15 E32 F41 F36 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20869&r=bec |
| By: | Uwe Cantner (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Michael Stützer (School of Economics and Business Administration, Friedrich-Schiller-University Jena) |
| Abstract: | This paper examines the use of social capital in the venture creation process. We compare solo entrepreneurs (n=182) and new venture teams (n=274) from a random sample of start-ups in innovative industries and test social capital use and its effects on firm performance. Our results reveal that solo entrepreneurs and new venture teams do not differ in their degree of use of social capital. However, there are differences in the determinants of social capital use in both groups. We find that weak ties assist solo entrepreneurs and have positive significant effects on new venture performance. For team start- ups, we find no direct effect of social capital. However, further tests indicate for teams that human capital variety positively moderates the effect of social capital on performance. |
| Keywords: | Entrepreneurship, Nascent entrepreneurship, Social capital, Start-up teams, Entrepreneurial learning |
| JEL: | M13 L25 L26 D83 |
| Date: | 2010–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2010-012&r=bec |