Productivity and Firm Dynamics
Paper Session
Saturday, Jan. 6, 2024 2:30 PM - 4:30 PM (CST)
- Chair: Cindy Cunningham, U.S. Bureau of Labor Statistics
Product Market Dynamics over the Business Cycle: Market Structure and Shock Propagation
Abstract
This study examines the impact of market structure on the amplification of macroeconomic shocks, with a focus on the strategic interactions between producers. To quantify the role of product market dynamics over the business cycle, the study presents a dynamic model of imperfect competition, where producers make entry and exit decisions based on their expectations of future market structure and their competitors' behavior. The model is estimated using large-scale scanner data in the US during the Great Recession period and the microdata helps to analyze the heterogeneity of each product and market dynamics over time. Results show that compared to an economy without strategic interaction, it generates a larger response of firms to changes in aggregate demand shocks, resulting in higher welfare costs of the business cycle. To mitigate the shock propagation, the study explores targeted policy solutions, including subsidies for entrants and incumbents, through counterfactual experiments.The Pass-Through of Productivity Shocks to Wages and the Cyclical Competition for Workers
Abstract
Using French matched employer-employee data, I document that after positivefirm-level productivity shocks, the wages of stayers rise and job-to-job transitions
fall. However, after positive sectoral productivity shocks, wages rise significantly
more and job-to-job transitions rise. To explain these differences, I build a model with
dynamic wage contracts subject to two-sided limited commitment and imperfect information
and in which sectoral productivity shocks generate cyclical competition for
workers. After a positive firm-level shock, a firm increases its wages to reduce the quit
rate of its workers. This increase is limited because workers are risk-averse and value
insurance against shocks and because there is no increase in the cyclical competition
from other firms. In contrast, after positive sectoral shocks, the cyclical competition
for workers heats up and workers become more likely to switch jobs. In response,
all firms increase their wages more aggressively to retain them. I find that firing costs
play a new role when contracts are endogenous: by enhancing the commitment power
of firms, they allow workers to receive more insurance against negative shocks.
Workers' Job Prospects and Young Firm Dynamics
Abstract
This paper studies how workers’ uncertain job prospects affect young firms’ pay and employment growth, and quantifies the macroeconomic implications. Building a heterogeneous-firm directed search model in which workers gradually learn about permanent firm productivity types, I find that the learning process creates endogenous wage differentials for young firms. In the model, a high performing young firm must pay a higher wage than that of high performing old firms, while a low performing young firm offers a lower wage than that of low performing old firms, to attract workers. This is because workers are unsure whether the young firm’s performance reflects its fundamental type or a temporary shock given the lack of track records. I find that these wage differentials affect both hiring and retention margins of young firms and can dampen the growth of high-potential young firms. Furthermore, the model indicates that higher uncertainty about young firms results in bigger wage differentials and thus hampers overall young firm activity and aggregate productivity. Using employee-employer linked data from the U.S. Census Bureau and regression specifications guided by the model, I provide empirical support for the novel predictions of the model.JEL Classifications
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy