LABOR CONTRACTS AND FLEXIBILITY: EVIDENCE FROM A LABOR MARKET REFORM IN SPAIN

This paper evaluates the effects of a labor market reform in Spain that removed restrictions on fixed‐term or temporary contracts. Our empirical results are based on longitudinal firm‐level data that cover observations before and after the reform. We posit and estimate a dynamic labor demand model with indefinite and fixed‐term labor contracts, and a general structure of labor adjustment costs. Experiments using the estimated model show important positive effects of the reform on total employment (i.e., a 3.5% increase) and job turnover. There is a strong substitution of permanent by temporary workers (i.e., a 10% decline in permanent employment). The effects on labor productivity and the value of firms are very small. In contrast, a counterfactual reform that halved all firing costs would produce the same employment increase as the actual reform, but much larger improvements in productivity and in the value of firms. (JEL J23, J32, J41)     

THE IMPACT OF TRADE COSTS ON FIRM ENTRY,EXPORTING, AND SURVIVAL IN KOREA

This study examines how changes in trade costs have affected entry, exit, productivity, and exporting in the Korean manufacturing sector. We verify several predictions of heterogeneous‐firm models of international trade. For example, falling import‐trade costs are associated with less entry and lower market shares among existing domestic firms, and higher total factor productivity for Korean manufacturing as a whole. The size of firms plays an important role in many of our results. New domestic firms are more likely to be small, but large firms are less likely to exit and more likely to have an increase in total factor productivity. (JEL F10, D24)     

WORKFORCE COMPOSITION AND FIRM PRODUCTIVITY: EVIDENCE FROM TAIWAN

We study the relationship between workforce composition and firm productivity based on a new employee‐employer‐matched data set, using an array of workforce characteristics and three alternative measures of firm productivity. While firm age is not essential for the performance of firms, those of smaller size and those in the steel and transportation industries outperform others. Moreover, labor quality, particularly the middle‐aged with higher education, contributes significantly to firms' productivity. Furthermore, economic incentives and market competition both play important roles in the performance of firms. Finally, there is an employer‐size premium with larger firms paying higher wages and nonwage benefits. (JEL C33, D20, J30)     

QUALITY DIFFERENCES,THIRD‐DEGREE PRICE DISCRIMINATION,AND WELFARE

We propose a model with two markets to analyze the welfare implications of price discrimination with quality differences. In each market a local firm that operates in that market only competes against a global firm that operates in both markets. Local firms produce higher‐quality goods than the global firm. If the quality levels of the local firms' products are the same, price discrimination is never welfare‐decreasing. If they differ, discrimination is welfare‐increasing if quantity increases. Because of a positive allocation effect of price discrimination, there are parameter values such that welfare increases while total output decreases with price discrimination. (JEL D43, D60)     

THE RESPONSE OF FIRMS' LEVERAGE TO RISK: EVIDENCE FROM UK PUBLIC VERSUS NONPUBLIC MANUFACTURING FIRMS

This article empirically investigates the effects of macroeconomic and firm‐specific risk on firms' leverage. The analysis is carried out for a large panel of public and nonpublic UK manufacturing firms over the period 1999–2008. Our investigation provides evidence that UK manufacturing firms use less short‐term debt during periods of high risk. However, the leverage of nonpublic manufacturing firms is more sensitive to firm‐specific risk in comparison to their public counterparts while macroeconomic risk affects both types of firms similarly. Our investigation also shows that firms with high liquid assets reduce their leverage more (less) during periods of heightened firm‐specific (macroeconomic) risk. (JEL C23, G32)     

Works Councils and Firm Productivity in France

This paper utilizes establishment-level data to explore the impact of works councils on firm productivity in France. A variety of empirical techniques is employed, including fixed effects and regression discontinuity designs, to identify this impact. We estimate the works council effect on productivity in union and nonunion settings, and investigate the extent to which alternative forms of worker voice and information sharing might substitute for the works council’s impact in production. We find no evidence of a positive impact of works councils on firm productivity in any of our results, and some limited evidence of a negative effect in some of the findings. There is no indication that estimated impacts on productivity vary with union status. However, a notable finding is that worker voice and information-sharing human resource practices are prevalent in French firms regardless of works council status, and are found to have positive and statistically significant effects on firm productivity.     

FIRM PRODUCTIVITY AND SALES DESTINATIONS: EVIDENCE FROM WITHIN CHINA

This paper builds on and extends the literature on the linkage between firm productivity and their export destinations to study the productivity of Chinese firms and their sales destinations in other provinces within China. Moving the study from international markets to domestic markets conveniently avoids the hard to control heterogeneity across different destination markets in international trade, as provincial markets within China are less heterogeneous than international markets but segmented by Chinese provincial borders. The paper explicitly controls the fact that many firms only sell in their home provinces by using the zero‐inflated negative binomial method. It finds that firms with higher productivity tend to sell in other provincial markets, and more productive firms enter more provincial markets. The results are robust. (JEL F15, D21, D24)     

A THEORY OF TURNOVER AND WAGE DYNAMICS

We develop a model of turnover and wage dynamics with insurance, match‐specific productivity, and long‐term contracting. The model predicts that wages are downward rigid within firms but can decrease when workers are fired. We apply the model to study the impact of business cycles on subsequent wages and job mobility. Workers hired during a boom have persistent higher future wages if staying with the same firm. However, these boom hires are more likely to be terminated and have shorter employment spells. (JEL C73, D23, D82, J33)     

DOES OFFSHORING PAY? FIRM‐LEVEL EVIDENCE FROM JAPAN

This article explores the impact of offshoring on productivity using firm‐level data for the Japanese manufacturing industries during the period 1994–2000. We find that intrafirm offshoring, that is, sourcing of intermediate inputs to foreign affiliates within a particular multinational firm, has generally a positive effect on productivity of the offshoring firm, while arm’s‐length offshoring, that is, sourcing to unaffiliated foreign firms, does not have such an effect. In addition, the impact of arm’s‐length offshoring is negative for nonmultinationals and nonexporters but nonnegative for multinationals and exporters. These results suggest that the costs of searching foreign firms suitable for offshoring are nonnegligible. (JEL F14, L23)     

WHO QUITS NEXT? FIRM GROWTH IN GROWING ECONOMIES

We document novel facts about the relationship between aggregate growth and firm dynamics using a large set of countries. We argue that firm employment patterns are not necessarily informative about cross‐country differences in aggregate growth because they are induced by changes in the productivity of a firm relative to others. In contrast, aggregate growth is linked to average firm‐level productivity growth and firm age. We formalize this intuition through a tractable model of endogenous aggregate growth and firm dynamics where firms realize positive returns to investment with some probability. We find that cross‐country disparities in this probability can account for two‐thirds of the variation in aggregate growth. (JEL D21, D22, E23, O4)     

THE HETEROGENEITY OF IMMIGRANTS,HOST COUNTRIES' INCOME AND PRODUCTIVITY: A CHANNEL ACCOUNTING APPROACH

This article exploits changes in the distribution of immigrants across 20 Organization for Economic Co‐operation and Development countries from 1960 to 2005 in order to assess their contribution to income of destination countries. The non‐random sorting of immigrants across countries is addressed by using an instrumental variable strategy. The instrument is built by estimating a bilateral migration model incorporating exogenous origin country determinants of migration. Aggregate results reveal that immigrants have a positive effect on income that works primarily through total factor productivity (TFP). We further construct a novel dataset from censuses and labor force surveys to explore the information on the age of immigrants. Contrasting income effects are found across age groups: a higher share of immigrants among the youth has a negative impact on aggregate income, while a higher share of immigrants among prime‐aged workers has a positive effect. We interpret this disparity as short‐term versus medium‐term effects. Adjustments over time involve changes in TFP but also in the human capital of the native‐born. (JEL F22, J24, J31, O31)     

Which Domestic Firms Benefit from FDI? Evidence from Selected African Countries

The existing literature on the effects of FDI inflows on domestic firms' performance offers ambiguous evidence. Macro‐level studies suggest that the characteristics of inward FDI and the ‘absorptive capacity’ of the host economy matter in determining the sign (or the mere existence) of these effects. Studies based on micro‐level data have so far mostly focused on finding a nexus between FDI inflows and the productivity of domestic firms, suggesting that the effects might be highly heterogeneous. This article, using a recent firm‐level survey conducted by UNIDO in 19 sub‐Saharan African countries, explores the channels through which multinational enterprises may exert an impact on local firms: products’ market, input availability and costs, access to finance and export opportunities, and analyses the strategic reactions of domestic firms induced by the presence of foreign affiliates.     

THE MATCHING OF HETEROGENEOUS FIRMS AND POLITICIANS

We use a Chinese firm‐director panel dataset to examine the matching of heterogeneous firms and politicians. On the basis of 36,308 detailed biographies, we identify individuals who previously held bureaucratic positions and classify the rank of each position in the Chinese political hierarchy. Using this direct measure of political capital, we examine how firms with heterogeneous productivity match politicians with different political strength. Our results indicate a positive assortative matching in the political capital market. More productive firms are paired with more powerful politicians. Furthermore, the preference for political capital relative to conventional human capital increases in firms' dependence on external financing and the inefficiency of local governments. Conditional on the endogenous matching, new hires with political capital receive more compensation than their co‐workers in the same cohort. The marginal effect of a one‐step rise on the political ladder significantly exceeds the marginal effect of raising education attainment from, for example, high school to college. (JEL D21, D73, J24, J31, O12)     

THE EFFECTS OF PUBLIC SPENDING COMPOSITION ON FIRM PRODUCTIVITY

This paper exploits the unique institutional features of South Africa to estimate the impact of provincial public spending on firm productivity. In contrast to existing microeconomic evidence, we explore the effects of fiscal expenditures and remove the effects of revenue raising policies. Our identification strategy is based on differences in the effects of public spending across firms within the same industry and province. We show that public spending composition affects productivity depending on the capital intensity of firms, with less capital intensive firms being particularly affected. These effects appear to be robust. (JEL D24, H32, H72)     

IMPACT OF CORRUPTION ON FIRM‐LEVEL EXPORT DECISIONS

This article examines the impact of corruption on the self‐selection of firms into domestic and export markets. A heterogeneous firm model predicts that corruption decreases the probability that a firm only sells domestically, increases the probability that a firm exports indirectly through an intermediary, and decreases the probability that a firm exports directly. The propositions of the model are tested using a comprehensive dataset of over 23,000 firms in 80 developing countries. The results confirm both the self‐selection of firms according to their productivity and the anticipated impact of corruption. This indicates that in developing countries where corruption is especially severe, intermediaries provide a crucial link to global markets. (JEL F1, O1)     

Relationship Preferences Among Gay and Lesbian Online Daters: Individual and Contextual Influences

There is currently little knowledge about what gay men and lesbians seek in a romantic relationship. This study extends the literature on gay men and lesbians' partnership preferences by engaging in the first large‐scale empirical study of the long‐term dating intentions and monogamy beliefs of gay and lesbian online daters across 53 regions in 8 European countries (N = 24,598). Looking at profile and preference information, the authors examined both individual and contextual determinants in a series of multilevel logistic regression analyses. They show that lesbians give more importance to monogamy but show less interest in starting a long‐term relationship. The data also reveal the importance of life course aspects such as relationship history and presence of children. Finally, the authors empirically demonstrate that social tolerance and legal recognition of same‐sex unions are associated with higher long‐term dating intentions and stronger monogamy beliefs.     

The effect of strikes on shareholder returns

Relationships between labor disputes and shareholder wealth are examined through analysis of 91 strikes between 1951 and 1973. Stock market reactions to strikes of different durations are analyzed through a market model methodology. Different market adjustments are found for short, intermediate, and long duration strikes. Shareholder returns prior to strikes are below market returns for firms in the short strike category, approximately equal to the market returns for firms in the short strike category, approximately equal to the market for firms in the intermediate strike duration category, and above the market for firms in the long strike category. After strikes, shareholder returns decline for firms in the short and long strike duration categories.     

NEW FACTS ABOUT FIRM RISK ACROSS COUNTRIES AND OVER THE BUSINESS CYCLE

The characteristics of firm‐level risk over the cycle and across countries are studied in this paper. Low idiosyncratic firm‐level risk is found to be a feature of highly developed, stable economies, whereas the countercyclicality of firm‐level risk is associated with flexible as well as stable economies. These facts are uncovered with the help of a theoretical model where small, risk‐averse firms display procyclical risk, whereas larger, risk‐neutral firms have countercyclical risk patterns that depend on the rigidity of the business environment. The predictions of the model are then confirmed by the data using a large international firm‐level database (ORBIS) together with the World Bank Doing Business Database, during the “Great Recession” across 55 countries. The findings are critical for the growing literature of uncertainty driven business cycles, and show that firm‐level uncertainty cannot be treated as an exogenous parameter. (JEL D21, D22, E32, F44, L11, L25)     

AN OPEN‐ECONOMY MODEL WITH MONEY,ENDOGENOUS SEARCH,AND HETEROGENEOUS FIRMS

This paper describes a new monetary open‐economy model where firms have market power due to search frictions in the goods market, and endogenous search effort by consumers mitigates this market power. The optimal inflation rate generally depends positively on the cost of search effort, the cost of firm entry, and the cost of trade. Higher inflation always improves a country's terms‐of‐trade against its trading partners. I also characterize a general class of matching processes which offer a novel approach to modeling firm sales. (JEL D43, E40, F12)     

The scars of youth: Effects of early‐career unemployment on future unemployment experience

Does early‐career unemployment cause future unemployment? The authors approach this question using German administrative matched employer–employee data that track almost 700,000 individuals over 24 years. Instrumenting early‐career unemployment with firm‐specific labour demand shocks, they find significant and long‐lasting “scarring effects”. In the mean, each additional day of unemployment during the first eight years on the labour market increases unemployment in the following 16 years by half a day. However, quantile regressions show that the scarring effects are much stronger for individuals who already suffer from lengthy and repeated spells of unemployment.