An Integrated Model of Cumulative Growth: Empirical Evidence for Nine OECD Countries, 1960-1990

ABSTRACT: This paper is an empirical analysis of the interaction between the dynamics of demand, productivity and employment in nine industrial countries: the United States, Canada, Japan, West Germany, France, Italy, the United Kingdom, the Netherlands and Belgium, 1960-1990. Its theoretical framework derives from the Kaldorian approach to cumulative growth in both its external and internal causation versions. The model we adopt is of an integrated kind, in which foreign demand is determined endogenously and domestic demand is divided into various component parts: exogenous for the public sector and endogenous for the private. More specifically, this is carried out by describing the way the dynamics of private consumption and private investments depend on economic variables located in the spheres of distribution and of technology, so that we can consider the operations of income compensation effects induced by technological change — via changes in income and its social distribution — as well as price compensation effects— the higher competitiveness of national products in foreign markets — mediated through the dynamics of exports.     

Firm Size and Employment Dynamics: Estimations of Labor Demand Elasticities Using a Fractional Panel Probit Model

This paper examines the comprehensive discussion on the relationship between job creation, or destruction and firm size. More specifically, the study will determine whether the argument about small‐ and medium‐sized enterprises (SMEs) showing higher employment dynamics is confirmed or not. As such, the following work applies elasticities from a standard labor demand model derived from the estimations of fractional probit models for panel data, as process recommended in Papke and Wooldridge [2008; Journal of Econometrics 145(1–2): 121–133]. Elasticities are a useful measure of employment dynamics, if it is assumed that SMEs act on the same markets. The elasticity results from German establishment data illustrate that firm size does matter for the increase or decrease of employment. SMEs with less than 10 workers exhibit a higher employment dynamic, compared with other entities, at each respective percentile in the distribution of the wage share. Additionally, the outcome of the analysis weakly confirms the hypothesis that smaller firms are more restricted to capital markets, compared with large entities. The results also illustrate that firm size only explains one aspect of job creation and destruction. As stated in the well‐known Hicks–Marshall rules for elasticities of factor demand, the results illustrate that the reaction of labor demand on economic changes increases with the share of labor. Firms with a high share of labor also have larger elasticities, compared with firms with a strong use of capital. Both effects, the size effect and the effect of the proportion of labor, would blend in reality, and therefore, possibly lead to controversial results for the relationship between firm size and employment dynamics. In addition, a model with a negative relationship among both variables is too simple to explain the behavior of firms.     

Reference compensation: a transfer of reference price theory to human resource management

The topics of compensation in human resource management and pricing in marketing theory both involve a monetary component that is important for companies to manage. While the role that price perceptions play for consumers is the subject of the well-established reference price theory, human resource management theory lacks any related concept for the compensation perceptions held by employees. This paper transfers reference price theory to HR management in the form of reference compensation, conceptualized as an individual’s compensation norm, including normative and predictive compensation expectations. Possible measures to influence employees’ reference compensation are suggested and avenues for further establishing the concepts in research and practice are developed. As a first empirical attempt to support the relevance of the concept, we present results of an exploratory study among 88 part-time students. We show that employees apply references when judging compensation, and that the applied references vary with different employment situations.     

Analysis of Job Satisfaction: The Case of Japanese Private Companies

The scope of economic theory expands if we consider that working provides people with both pecuniary compensation for its disutility and job satisfaction. This study empirically analyzes the job satisfaction of employees in Japanese private companies using a multivariate ordered probit model. In particular, we examine the effects of a big economic shock, such as the Lehman shock, on job satisfaction, as well as the effects of differences in gender and employment status. We estimate the model using a Bayesian analysis and a multivariate ordered probit model using the Markov chain Monte Carlo method. We show that non‐pecuniary aspects of jobs play an important role in job satisfaction.     

Do Foreigners Cushion Native Jobs? The Case of European Regions in the 1990s

Abstract. This paper investigates whether foreigners cushion native labour during the phases of the economic cycle. The theoretical model, based on the work of Blanchard and Katz (Brookings Papers on Economic Activity 0(1): 1–75, 1992), assumes that foreigners supply labour with a higher wage elasticity than natives. The empirical analysis, based on an unbalanced panel of 161 European regions during 1988–97, shows that following a labour demand shock the variability of native employment growth is lower the higher the proportion of foreign citizens in the local labour force. These results suggest that foreigners absorb some of the effects of the shock, shielding natives from its full impact. The analysis also reveals that the main channel mediating this ‘cushioning’ effect is the inter‐regional migration of foreign workers, followed (as a far distant second) by their higher/lower unemployment rates.     

Labour Flows as Determinants of the Wage–Price Spiral: An Empirical Analysis for The Netherlands

This study presents an empirical analysis of the influence of labour market flows on wage and price formation. A system of wage, price and employment equations after Nickell (Oxford Bulletin of Economics and Statistics 49: 103–128, 1987) is estimated, including labour flows as indicators of labour market tightness in the wage equation. An impulse response analysis using this system shows how changes in the flow of layoffs (flow from employment to unemployment) may be the basis of short‐run Phillips curve effects in The Netherlands     

Efficiency Wage,Fixed Employment Costs,and Dual Labour Markets

The standard efficiency wage‐based explanation of labour market dualism hinges on the existence of differences in monitoring across sectors. The paper proposes fixed employment costs as an alternative source of wage differentials for homogeneous workers. It shows that firms with larger fixed costs pay higher wages in order to elicit more effort from their workers, and tend to have higher capital/labour ratio and labour productivity. The model generates both involuntary unemployment and involuntary confinement in the secondary sector: high effort–high wage jobs are preferred to low effort–low wage jobs and either are preferred to unemployment. The proposed framework can also account for the various types of treatment of marginal jobs in primary sector firms envisaged by Doeringer and Piore (Internal Labour Markets and Manpower Analysis, 1971). In particular, an increase in fixed costs beyond a certain level may induce primary sector firms to restructure, segment production, and enter the secondary sector, thus converting their jobs into secondary jobs. From a welfare point of view, we cannot state in general the desirability of subsidizing fixed employment costs; however, we show that an employment subsidy financed by a wage tax is able to increase employment with no loss in terms of production.     

Technological Innovation and Employment Reallocation

The paper describes the dynamics of employment at a firm and sector level in French industry and examines how far technological innovation can give account of it. We use a sample of 15,186 firms, over the period 1986–90. The two facts we want to explain at a firm and sector level are the net change in employment and the micro turmoil (transfers between competing firms). Innovating firms and sectors create jobs more than others over the medium run (5 years). Process innovation is more about job creation than product innovation at the firm level, but the converse is true at the sector level. This paradox is probably due to substitution effects (creative destruction).     

The British Docks: A Test of Alternative Models of Wage and Employment Determination

In this paper we compare two well-known models of union bargaining: labour demand and efficient bargains. We use data on the British docks which belonged to the national Dock Labour Board, abolished in 1989. The docks industry is particularly well-suited for a test of the competing models: in fact it had a long tradition of union bargaining on manning levels and, at the same time, it experienced a long-run decline in employment. Also, jobless dockers were granted some form of unemployment compensation. The institutional features of the industry allow to test a strong version of the efficient bargain model, where the union equates the utility of those who work and those who do not. Our evidence supports the strong efficiency hypothesis: employment depends only on the opportunity cost of working. The secular decline in employment in the industry is explained mainly by technological progress, i.e. the introduction of containers.     

Political connections,gender diversity and compensation policy

In this paper we analyze the influence of corporate governance, specifically political connections and gender diversity, on board and managers’ remuneration in savings banks in Spain. We also analyze whether financial experience moderates the relation between political experience and board compensation. To the best of our knowledge, the effects of having politicians on remuneration levels of financial firm have not been studied. Connections are important in hiring decisions and in generating business so it is interesting to explore whether they are important when it comes to compensation policies. We use a panel data and financial and corporate governance information from 44 savings banks for the period 2004–2009. Our results show that the previous political activity of the chairperson positively influences board remuneration. Our study provides the first evidence for a link between political connection and compensation policy, showing that, in addition to the standard firm-level factors, political and financial experience are material determinants of economic significance in compensation policies. Specifically, we show that financial expertise may substitute for governance mechanisms that are lacking in firms with weak governance environments (e.g. saving banks with high politicization).     

JEEA‐FBBVA Lecture 2012: USE AND ABUSE OF AUTHORITY: A BEHAVIORAL FOUNDATION OF THE EMPLOYMENT RELATION

Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951, Econometrica, 19, 293–302), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to the realization of the state of the world, but he may also abuse this flexibility to exploit the agent. We capture this tradeoff in an experimental design and show that principals exhibit a strong preference for the employment contract. However, selfish principals exploit agents in one‐shot interactions, inducing the latter to resist entering into employment contracts. This resistance to employment contracts vanishes if fairness preferences in combination with reputation opportunities keep principals from abusing their power, leading to the widespread, endogenous formation of efficient long‐run employment relations. Our results inform the theory of the firm by showing how behavioral forces shape an important transaction cost of integration—the abuse of authority—and by providing an empirical basis for assessing differences between the Marxian and the Coasian view of the firm, as well as Alchian and Demsetz's (1972, American Economic Review, 62, 777–795) critique of the Coasian approach.     

Value of and Interaction between Production Postponement and Information Sharing Strategies for Supply Chain Firms

We analyze the value of and interaction between production postponement and information sharing, which are two distinct strategies to reduce manufacturers’ uncertainty about demand. In both single‐level and two‐level supply chains, from the manufacturer's perspective, while information sharing is always valuable, production postponement can sometimes be detrimental. Furthermore, the value of production postponement is not merely driven by savings in inventory holding cost as postponement enables the manufacturer to avoid both excess and shortfall in production. We find that production postponement and information sharing strategies may substitute, complement, or conflict with each other, depending on the extent of the increase in the unit production cost when production is postponed. In a two‐level supply chain, from the retailer's perspective, information sharing and production postponement can be beneficial or detrimental. When information sharing is beneficial to the retailer, the retailer always shares her demand information with the manufacturer voluntarily. In addition, this voluntary information sharing is truthful because inflated or deflated demand information hurts the retailer through a higher wholesale price or a stock‐out. However, the retailer never shares her demand information voluntarily if the manufacturer has already adopted production postponement because production postponement and information sharing strategies always conflict with each other. Even when the retailer does not benefit from information sharing, we show that the manufacturer can always design an incentive mechanism to induce the retailer to share the demand information, irrespective of whether the manufacturer has already implemented production postponement or not. The above findings underscore the need for a careful assessment of demand uncertainty‐reduction strategies before the supply chain players embark upon them.     

Identifying Technology Spillovers and Product Market Rivalry

The impact of R&D on growth through spillovers has been a major topic of economic research over the last thirty years. A central problem in the literature is that firm performance is affected by two countervailing “spillovers” : a positive effect from technology (knowledge) spillovers and a negative business stealing effects from product market rivals. We develop a general framework incorporating these two types of spillovers and implement this model using measures of a firm's position in technology space and productmarket space. Using panel data on U.S. firms, we show that technology spillovers quantitatively dominate, so that the gross social returns to R&D are at least twice as high as the private returns. We identify the causal effect of R&D spillovers by using changes in federal and state tax incentives for R&D. We also find that smaller firms generate lower social returns to R&D because they operate more in technological niches. Finally, we detail the desirable properties of an ideal spillover measure and how existing approaches, including our new Mahalanobis measure, compare to these criteria.     

More Jobs Through Less Employment Protection? Evidence for West Germany

ABSTRACT: In reaction to growing criticism of the allegedly negative employment effects of job protection regulations (lay-off and dismissal restraints), the West German government in 1985 introduced new legislation facilitating the conclusion of temporary (i.e. fixed-term) work contracts in order to stimulate employment growth (‘Employment Promotion Act 1985‘AZPA). The research unit ‘Labour Market and Employment‘ at the WZB has evaluated the employment and labour market impact of the new legislation for the period 1985-1988, and apart from providing a detailed analysis of the socio-economic and institutional diversity of job arrangements covered by the category of temporary (i.e. fixed-term) employment, the project‘s focus has been on the impact of minor changes in the institutional frame- work as effected by the EPA on firms‘ employment policies, as well as on the overall level of employment. Results show that like in most other European countries the temporary work force in Germany has considerably grown over the past years in both absolute and relative terms, this increase, however, being largely due to cyclical factors as well as medium-term structural changes on the supply and demand side of the labour market rather than to changes in the regulatory framework as effected by the EPA. The impact of the new regulations on firms‘ hiring decisions and on the overall number of hirings in the total economy have to be regarded as rather modest, in fact amounting to not more than an estimated 25,000 additional hires per year or roughly 0.5|X% of all employment contracts concluded in the private sector. This marginal positive impact on firms‘ employment decisions, however, is counterbalanced by unintended substitution effects and an increase in involuntary quits arising from them when labour demand declines. Even under the overall positive employment development given in the period under investigation the net employment effects of the EPA temporary work legislation thus are shown to be at best marginal. In case of a deterioration of the overall economic situation, however, the increase in temporary job arrangements supported by the new legislation is likely to lead to accelerated workforce adjustments by firms and thus over time to result in a depression of the overall level of employment. From a theoretical point of view, the findings suggest that measures aiming at de-regulating labour relations such as the EPA largely fail to modify essential behavioral parameters of economic actors in economic environments which for decades have adjusted to a relatively high level of welfare state regulation, as has been the case in Western Germany.     

Mitigating Litigating: An Examination of Psychosocial Impacts of Compensation Processes Associated with the 2010 BP Deepwater Horizon Oil Spill

During the past four decades, a number of social science scholars have conceptualized technological disasters as a social problem. More specifically, research in this arena has identified individual and collective stress as a secondary trauma of processes intended to provide compensation and economic relief from disasters in general and, more specifically, technological disasters. Based on data from a 2013 household telephone survey of 1,216 residents of coastal Alabama, this article examines the relationship between psychosocial stress and compensation processes related to the 2010 BP Deepwater Horizon oil spill. We examine involvement with claims, settlement, and litigation activities; vulnerability and exposure to the spill; ties to resources; resource loss and gain; perceptions of risk and recreancy; and intrusive stress and avoidance behaviors as measured by the impact of event scale. Regression analysis reveals that the strongest contributors to intrusive stress were being part of the compensation process, resource loss, concerns about air quality, and income. Although being involved with compensation processes was a significant predictor of avoidance behaviors, the strongest contributors to avoidance behaviors were resource loss, air quality concern, income, being male, minority status, and community attachment. Beliefs that the compensation process was as distressing as the oil spill also significantly contributed to intrusive stress and avoidance behaviors. This research represents a step toward filling a gap in empirical evidence regarding the extent to which protracted compensation processes exacerbate adverse psychosocial impacts of disasters and hinder community recovery.     

Regional Differentials in Unemployment Rates: The Economic Causes

Abstract. Recent studies on the causes that bring about the increase in unemployment rates of the Mezzogiorno area and Italy are mainly based upon demographic and social causes. The aim of this study is to verify if they can be also influenced by economic factors. Through a dynamic model with partial adaptive hypothesis, some ways by which demand affects the differences of regional unemployment rates has been tested. In this respect it has been considered whether variations in economic activity can lead to different growth rates of regional production owing to the different industrial structures; whether the employers are influenced by local factors in varying the occupation when the production increases, and finally in which way the regional unemployment rate depends on the excess of desired, over effective, labour demand. Data base are from 1959 to 1976, and the unemployment rate is referred only to unemployed workers that is the better proxy of the unemployment connected with the economic cycle. The results show a slight reactiveness to demand, both in industrial labour demand and supply in the Mezzogiorno.     

Firing Costs,Efficiency Wages and Unemployment

This paper uses a Shapiro–Stiglitz efficiency wage model to analyse the effects of firing costs on wages, employment, expected utility and profits. It considers that the probability of a non–shirker being fired depends on an exogenous shock which follows a two–state Markov process. It finds that higher severance payments give rise to lower wages, a lower unemployment rate, an increase in firms’ profits and a decrease in the utility of both workers and the unemployed. These conclusions derive from the finding that a greater probability of keeping one’s job, because of higher firing costs, raises the value of the job and reduces the worker’s incentives to behave opportunistically; this enables firms to reduce wages. Hence, if firms pay efficiency wages, a higher degree of labour market flexibility increases unemployment.     

Internationalization,Innovation and Institutions: The 3 I's Underpinning the Competitiveness of Emerging Market Firms

The past decade has seen an increase in the extent of research focused on and around emerging market firms (EMFs) and their rising levels of competitiveness in both their home markets and more importantly in the global market place. At the same time, the practitioner-oriented literature has been documenting a growing number of corporate success stories that originate in emerging market economies. We posit that the growing prominence of EMFs is a result of three interrelated phenomena: the fast-paced internationalization of EMFs into both developing and developed market economies; the rapidly increasing extent to which business enterprises in emerging economies are focusing on knowledge-intensive processes and innovation; and the continuous evolution of institutions in these markets, particularly in terms of economic liberalization.     

Do Benefit Hikes Damage Job Finding? Evidence from Swedish Unemployment Insurance Reforms

Abstract. In 2001 and 2002, Sweden introduced several unemployment insurance reforms. A major innovation in the first reform was the introduction of a two‐tiered benefit structure for some unemployed individuals. This system involved supplementary compensation during the first 20 weeks of unemployment. The 2002 reform retained the two‐tiered benefit structure but involved also substantial benefit hikes for spells exceeding 20 weeks. This paper examines how these reforms affected transitions from unemployment to employment. We take advantage of the fact that the reforms had quasi‐experimental features where the ‘treatments’ differed considerably among unemployed individuals. We find that the reforms had strikingly different effects on job finding among men and women. The two reforms in conjunction are estimated to have increased the expected duration of unemployment among men but to have decreased the duration of unemployment among women. The overall effect on the duration of unemployment is not statistically different from zero. However, the reforms reduced job finding among men who remained unemployed for more than 20 weeks.