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)     

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)     

Parenthood,Gender and Work‐Family Time in the United States,Australia, Italy,France, and Denmark

Research has associated parenthood with greater daily time commitments for fathers and mothers than for childless men and women, and with deeper gendered division of labor in households. How do these outcomes vary across countries with different average employment hours, family and social policies, and cultural attitudes to family care provision? Using nationally representative time‐use data from the United States, Australia, Italy, France, and Denmark (N = 5,337), we compare the paid and unpaid work of childless partnered adults and parents of young children in each country. Couples were matched (except for the United States). We found parents have higher, less gender‐equal workloads than nonparents in all five countries, but overall time commitments and the difference by parenthood status were most pronounced in the United States and Australia.     

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 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)     

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)     

WHAT'S BEHIND THE FIGURES? QUANTIFYING THE CROSS‐COUNTRY EXPORTER PRODUCTIVITY GAP

We present a simple framework that allows us to examine the cross‐country exporter productivity gap without accessing confidential firm‐level data. This gap depends on the three readily available statistics: the productivity gap between two countries; the export participation rates; and export premia. This gap holds irrespective of the distribution underlying firm productivity and irrespective of the presence of fixed costs. Under specific conditions, allocative efficiency may affect the exporter productivity gap. The empirical analysis globally validates this exercise. (JEL F1, D24)     

INFLATION DYNAMICS AND SUBJECTIVE EXPECTATIONS IN THE UNITED STATES

We estimate a forward‐looking New Keynesian Phillips Curve (NKPC) for the United States using data from the Survey of Professional Forecasters as proxy for expected inflation. We obtain significant and plausible estimates for the structural parameters independently of whether we use the output gap or unit labor costs as a measure of marginal costs. Moreover, when estimating a Phillips curve where lagged inflation enters due to price indexation by nonreoptimizing firms, we obtain significant parameter estimates of the sign predicted by theory independently of the marginal cost measure used. (JEL E31)     

IQ IN THE PRODUCTION FUNCTION: EVIDENCE FROM IMMIGRANT EARNINGS

We show that a country’s average IQ score is a useful predictor of the wages that immigrants from that country earn in the United States, whether or not one adjusts for immigrant education. Just as in numerous microeconomic studies, 1 IQ point predicts 1% higher wages, suggesting that IQ tests capture an important difference in cross‐country worker productivity. In a cross‐country development accounting exercise, about one‐sixth of the global inequality in log income can be explained by the effect of large, persistent differences in national average IQ on the private marginal product of labor. This suggests that cognitive skills matter more for groups than for individuals. (JEL J24, J61, O47)     

BERTRAND COMPETITION WITH ASYMMETRIC MARGINAL COSTS

This article tests the prediction of three discrete asymmetric duopoly price competition games in the laboratory. The games differ from each other in terms of the size of the cost asymmetry that induces a systematic variation in the difference between the firms' marginal costs. While the standard theory requires the low‐cost firm to set a price just equal to the high‐cost firm's marginal cost, which is identical across all three games, and win the entire market, intuition suggests that market price may increase with a decrease in the absolute difference between the two marginal costs. We develop a quantal response equilibrium model to test our competing conjecture. (JEL L11, L12, C91, D43)     

MONETARY POLICY REGIME SHIFTS: NEW EVIDENCE FROM TIME‐VARYING INTEREST RATE RULES

We estimate forward‐looking interest rate rules for five large Organization for Economic Cooperation and Development economies, allowing for time variation in the responses to macroeconomic conditions and in the variance of the policy rate. Conventional constant parameter reaction functions likely blur the impact of (1) model uncertainty, (2) conflicting objectives, (3) shifting preferences, and (4) nonlinearities of policymakers' choices. We find that monetary policies followed by the United States, the United Kingdom, Germany, France, and Italy are best summarized by feedback rules that allow for time variation in their parameters. Estimates point to sizeable differences in the actual conduct of monetary policies even in countries now belonging to the European Monetary Union. Moreover, our time‐varying parameter specification outperforms the conventional Taylor rule and generalized method of moment–based estimates of reaction functions in tracking the actual Fed funds rate. (JEL E52, E58, E60)     

WORK‐RELATED ACCIDENTS AND THE LEVEL OF MARKET COMPETITION: AN ANALYSIS OF WORKER INJURY RATES AT U.S. STEEL CORPORATION, 1907–1939

We investigate the relationship between accident rates and industry structure for the United States’ steel industry during the first four decades of the 20th century. We develop a dominant firm theoretical model linking accident rates to number of competitors, showing a positive correlation between accident avoidance and the number of fringe competitors. We then test this theory empirically and, when controlling for other influences, find that reductions in the dominant firm’s market share reduce worker injury rates substantially. (JEL L13, L61, N62, N82)     

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 International Outsourcing Really Lower Workers’ Income?

We analyze the impact of international outsourcing on income, if the domestic labor market is imperfect, i.e. there is a bilateral bargaining between a firm and a labor union. In our analysis we distinguish between the cases where the parties negotiate over the wage only and where they negotiate over both wage and profit sharing. We find in the first case that outsourcing has an ambiguous effect on the workers’ income, while it increases the workers’ income in the second case. For the optimal amount of international outsourcing, we find that, depending on the wage effect of outsourcing, in a pure wage bargaining system it can be higher or lower than the level where domestic and foreign marginal labor costs are the same. In contrast, in a wage and profit share bargaining system, the amount of outsourcing lies below this level.     

EMPLOYMENT AND DEADWEIGHT LOSS EFFECTS OF OBSERVED NONWAGE LABOR COSTS

To assess the employment effects of labor costs, it is crucial to have reliable estimates of the labor cost elasticity of labor demand. Using a matched firm‐worker data set, we estimate a long‐run unconditional labor demand function, exploiting information on workers to correct for endogeneity in the determination of wages. We evaluate the employment and deadweight loss effects of observed employers' contributions imposed by labor laws (health insurance, training, and taxes) as well as of observed workers' deductions (social security and income tax). We find that nonwage labor costs reduce employment by 17% for white collars and by 53% for blue collars, with associated deadweight losses of 10% and 35% of total contributions, respectively. Since most firms undercomply with mandated employers' and workers' contributions, we find that full compliance would imply employment losses of 4% for white collars and 12% for blue collars, with respective associated deadweight losses of 2% and 6%. (JEL J23, J32)     

ACCOUNTING FOR COMPLEMENTARY SKILL SETS: EVALUATING INDIVIDUAL MARGINAL VALUE TO A TEAM IN THE NATIONAL BASKETBALL ASSOCIATION

Identifying an individual worker's contribution to firm production can be difficult in a team setting where spillovers in labor productivity exist among team members. This paper studies a model of labor productivity where workers have heterogeneous abilities, and can differently affect the productivity of their fellow teammates. Applying the model to the setting of the National Basketball Association (NBA), I can identify the marginal value that a basketball player brings to a particular team lineup, both through his own individual contributions and his complementary contribution to teammates' productivity. Estimates from the model imply that teammates have a significant impact on individual player productivity, and that taking into account spillovers across teammates is important to assessing both overall team productivity and an individual player's contribution to team productivity. I then evaluate whether player complementarities are valued in the NBA labor market in terms of higher salaries, and find that they are undervalued, and that players are instead paid mainly for their individual offensive production. This creates an asymmetry between player incentives and the team objective. To assess the size of this inefficiency, the top trading cycle algorithm of Shapley and Scarf (1974) is used to identify a Pareto optimal matching between players and teams, that accounts for the complementarities between heterogeneous players' skill sets. (JEL J30, L25, L83, M51)     

DYNASTIC MANAGEMENT

The most striking difference in corporate‐governance arrangements between rich and poor countries is that the latter rely much more heavily on the dynastic family firm, where ownership and control are passed on from one generation to the other. We argue that if the heir to the family firm has no talent for managerial decision making, dynastic management is a failure of meritocracy that reduces a firm's total factor productivity (TFP). We present a simple model that studies the macroeconomic causes and consequences of dynastic management. In our model, the incidence of dynastic management depends, among other factors, on the imperfections of contractual enforcement. A plausible calibration suggests that, via dynastic management, poor contract enforcement may be a substantial contributor to observed cross‐country differences in aggregate TFP. (JEL O43, O47, G32)     

Déjà vu for airline industrial relations

Fifteen years after deregulation, labor relations in the airline industry returned to thestatus quo ante, as union power, particularly ALPA’s, still dominates. Without a long-term shift in bargaining power between the parties, costs and productivity have not changed much. Labor accounts for 60 percent of the cost difference between strong and low-cost carriers. American, Delta, United, Northwest, and USAir would require some combination of labor cost concessions or productivity increases of $1.6 billion to match the productivity-adjusted labor costs for low-cost carriers’ flight crews. To remain competitive, strong carriers and unions must develop strategies to deal with anachronistic work rules, provisions to contract out work, and premium pay for airline employees.     

PRODUCT DIVERSITY,DEMAND STRUCTURES,AND OPTIMAL TAXATION

This article studies optimal taxation in a general equilibrium macroeconomic model with endogenous entry. We compare the constant elasticity of substitution (CES) model to three alternative demand structures: oligopolistic competition in prices, oligopolistic competition in quantities, and translog preferences. Our economy is characterized by two distortions: a labor distortion due to the misalignment of markups on goods and leisure, and an entry distortion due to the misalignment of the consumer surplus effect and the profit destruction effect of entry. The two distortions interact in determining the wedge between the market‐driven and optimal level of product diversity. We show how optimal labor and entry taxes depend on the prevailing demand structure, the nature and size of entry costs, and the degree of substitutability between goods. (JEL E22, E61, E62)     

WHEN SHOULD DRIVERS BE ENCOURAGED TO CARPOOL IN HOV LANES?

Policies to encourage carpooling in high‐occupancy vehicle (HOV) lanes have been adopted in the United States to lower congestion and reduce air pollution. We analytically model highway congestion and other vehicle‐related externalities. Encouraging carpooling decreases total costs when congestion relief in mainline lanes outweighs increased HOV lane congestion. Importantly, entry of new drivers via induced demand can negate the benefits of increased carpooling. Using 10 years of traffic data from Los Angeles we estimate time and route‐specific marginal external costs. Because costs vary substantially across routes, hours, and days, current policies to promote carpooling will often increase social costs. (JEL R41, R48, Q53)