When sociable workers pay off: Can firms internalize social capital externalities?

We use an endogenous growth model to contrast the socially optimal allocation of human capital with the decentralized solution, in a context where workers make the choices that determine social capital accumulation. As social capital is expected to increase productivity but is not traded in markets, a positive social capital externality is identified. We discuss the possibility that, in response to this externality, firms subsidize social capital accumulation activities, incurring into additional costs that are recouped through productivity gains. This reaction by firms may be seen as a justification for some corporate social responsibility actions targeted at workers, although a full internalization of the externality does not look achievable in practice.     

The effects of market structure on industry growth: Rivalrous non-excludable capital

We analyze imperfect competition in dynamic environments where firms use rivalrous but non-excludable industry-specific capital that is provided exogenously. Capital depreciation depends on utilization, so firms influence the evolution of the capital equipment through more or less intensive supply in the final-goods market. Strategic incentives stem from, (i) a dynamic externality, arising due to the non-excludability of the capital stock, leading firms to compete for its use (rivalry), and, (ii) a market externality, leading to the classic Cournot-type supply competition. Comparing alternative market structures, we isolate the effect of these externalities on strategies and industry growth.     

Reducing Start‐up Costs for New Firms: The Double Dividend on the Labor Market*

Starting a firm with expansive potential is an option for educated and high‐skilled workers. If there are labor market frictions, this additional option can be seen as reducing the chances of ending up in a low‐wage job and hence as increasing the incentives for education. In a matching model, we show that reducing the start‐up costs for new firms results in higher take‐up rates of education. It also gives rise—through a thick‐market externality—to higher rates of job creation for high‐skilled labor as well as average match productivity. We provide empirical evidence to support our argument.     

Differential Migration Prospects,Skill Formation,and Welfare

This paper develops a one sector, two‐input model with endogenous human capital formation. The two inputs are two types of skilled labor: “engineering,” which exerts a positive externality on total factor productivity, and “law,” which does not. The paper shows that a marginal prospect of migration by engineers increases human capital accumulation of both types of workers (engineers and lawyers), and also the number of engineers who remain in the country. These two effects are socially desirable, since they move the economy from the (inefficient) free‐market equilibrium towards the social optimum. The paper also shows that if the externality effect of engineering is sufficiently powerful, everyone will be better off as a consequence of the said prospect of migration, including the engineers who lose the migration “lottery,” and even the individuals who practice law.     

General training and oligopsony

I consider a duopsony model of a general skilled labour market. The source of the market power of the firms is the mobility cost of the workers. In the model general training is inefficient and the firms bear a share of the general training cost. If capital market imperfections prevent workers from investing in human capital, the imperfect competition in the skilled labour market compared with the perfect competition promotes general training. In order to remove the inefficiency of personnel training it is necessary to link together a minimum wage for skilled workers and loans to apprentices.     

Skills,Tasks and the Scarcity of Talent in a Global Economy

The scarcity of talent is a tremendous challenge for firms in the globalized world. This paper investigates the role of labor market imperfection in open economies for the usage of talent in the production process of firms. For this purpose, I set up a heterogeneous firms model, where production consists of a continuum of tasks that differ in complexity. Firms hire low‐skilled and high‐skilled workers to perform these tasks. How firms assign workers to tasks depends on factor prices for the two skill types and the productivity advantage of high‐skilled workers in the performance of complex tasks. I study the firms’ assignment problem under two labor market regimes, which capture the polar cases of fully flexible wages and a binding minimum wage for low‐skilled workers. Since the minimum wage lowers the skill premium, it increases the range of tasks performed by high‐skilled workers, which enhances the stock of knowledge within firms to solve complex tasks and reduces the mass of active firms. In a setting with fully flexible wages trade does not affect the firm‐internal assignment of workers to tasks. On the contrary, if low‐skilled wages are fixed by a minimum wage, trade renders high‐skilled workers a scarce resource and reduces the range of tasks performed by this skill type with negative consequences for the human capital stock within firms. In this case, trade leads to higher per‐capita income for both skill types and thus to higher welfare in the open than in the closed economy, whereas – somewhat counter‐intuitive – inequality between the two skill types decreases, as more low‐skilled workers find employment in the production process.     

On the welfare implications of firing costs

This is a paper on the theory of institutions. It provides a rationale for the presence of firing costs in OECD countries based on a market failure that takes the form of an externality. Workers have firm-specific and industry-specific skills, and in each period there is a nonzero probability that a worker quits. The quitting probability makes the private discount rate (used by firms in making decisions about firing workers) higher than the social discount rate. This generates a “quitting externality”, where firms lay off too many workers in a recession. Firms are too quick to dispose of their human capital in a cyclical downturn because it is of less value to them than it is to society. State-mandated redundancy payments become a second-best remedy to overcome the market failure.     

Optimal fiscal policy in the Uzawa-Lucas model with CES production

This paper devises an endogenous growth model with human capital in the Uzawa-Lucas framework in which the average human capital has a positive external effect on the goods sector. Unlike previous works, this paper assumes that output is produced with a CES technology and analyzes the existence, uniqueness, and stability of equilibrium. Also, a fiscal policy is devised that is capable of providing the required incentives to optimize the competitive equilibrium. In order to correct the market failure caused by the externality, the authors introduce a subsidy to human capital and analyze how it can be financed in an optimal way. Some simulation results are presented.     

Matching, Heterogeneity, and the Evolution of Income Distribution

This paper analyzes a model in which firms and workershave to engage in costly search to find a production partner,and endogenizes the skill, job, and wage distributions in thiscontext. The presence of search frictions implies that thereare two redistributive forces in the labor market. The firstis mismatch relative to the Walrasian economy; skilled workerstend to work with lower physical to human capital ratios, andthis compresses the earnings differentials. The second is theopportunity cost effect; because the opportunity cost of acceptingan unskilled worker, which is to forgo the opportunity to employa skilled worker, is high, unskilled wages are pushed down. Theinteraction between these two forces leads to a non-ergodic equilibriumprocess for wage and income inequality. Further, the presenceof mismatch reduces the rate of return to physical capital andthus depresses growth. A key prediction of the analysis is thatincreasing wage inequality is more likely to arise in economieswith less frictional labor markets, which is in line with thediverse cross-country patterns observed over the past two decades.Finally, the paper predicts that, as is largely the case withU.S. data, between group and within group wage inequality shouldmove in the same direction.     

A DYNAMIC ANALYSIS OF EDUCATIONAL ATTAINMENT,OCCUPATIONAL CHOICES,AND JOB SEARCH*

This article examines career choices using a dynamic structural model that nests a job search model within a human capital model of occupational and educational choices. Wage growth occurs in the model because workers move between firms and occupations as they search for suitable job matches and because workers endogenously accumulate firm and occupation specific human capital. Simulations performed using the estimated model reveal that both self‐selection in occupational choices and mobility between firms account for a much larger share of total earnings and utility than the combined effects of firm and occupation specific human capital.     

Rural-to-urban migration, human capital, and agglomeration

A new general-equilibrium model that links together rural-to-urban migration, the externality effect of the average level of human capital, and agglomeration economies shows that in developing countries, unrestricted rural-to-urban migration reduces the average income of both rural and urban dwellers in equilibrium. Various measures aimed at curtailing rural-to-urban migration by unskilled workers can lead to a Pareto improvement for both the urban and rural dwellers. In addition, the government can raise social welfare by reducing the migration of skilled workers to the city. Moreover, without a restriction on rural-to-urban migration, a government's efforts to increase educational expenditure and thereby the number of skilled workers may not increase wage rates in the rural or urban areas.     

Market competition,lobbying influence and environmental externalities

In this paper, we contribute to the debate regarding the relationship between lobbying and environmental regulation by explicitly taking into account the role of market competition. We analyse how the number of firms affects both the effectiveness of lobbying in fighting environmental regulation and the individual incentive for firms to switch to green technology. To explore this issue, we present a Cournot oligopoly where firms can choose between abating the environmental externality or lobbying the government to hold a loose regulation. We investigate two alternative government's political objectives. In the first, government aims to only minimise the externality, while in the second, it also cares about the consumers surplus. We find that, in both cases, the higher the number of firms, the higher the incentive to abate. However, while in the first case, either both types of firms coexist or all firms switch to be green, in the other case, there exists a minimum the number of firms below which all firms remain polluting.     

Corporate Tournaments, Human Capital Acquisition, and the Firm Size–Wage Relation

This paper provides a possible explanation for the empirically observed size–wage effect and inter-industry wage differences. It develops a model in which incentives for workers to accumulate general human capital are provided by corporate tournaments, where workers with the highest level of general human capital win promotions. Given that the prizes in such tournaments are determined by outside market conditions, the investment and the equilibrium wages depend on firm and industry characteristics. The model implies that workers in bigger firms and in more technology intensive and profitable firms and industries acquire more human capital and receive higher wages and benefits.     

Foreign ownership wage premia in emerging economies

In this article we examine the relationship between wages, labour productivity and ownership using a linked employer–employee dataset covering a large fraction of the Czech labour market in 2006. We distinguish between different origins of ownership and study wage and productivity differences. The raw wage differential between foreign and domestically‐owned firms is about 23 percent. The empirical analysis is carried out on both firm‐ and individual‐level data. A key finding is that industry, region and notably human capital explain only a small part of the foreign–domestic ownership wage differential. Both white and blue collar workers as well as skilled and unskilled employees obtain a foreign ownership wage premium. Foreign ownership premia are more prevalent in older and less technologically advanced firms. Joint estimation of productivity and wage equations show that, controlling for human capital, the difference in productivity is about twice as large as the wage differential. Overall, results indicate that the international firms share their rents with their employees.     

Employment Protection and Unemployment Benefits: On Technology Adoption and Job Creation in a Matching Model

We analyse the effects of different labour‐market policies (employment protection, unemployment benefits, and payroll taxes) on job creation and technology choices in a model where firms are matched with workers of different productivity and wages are determined by ex post bargaining. The model is characterized by two intertwined sources of inefficiency, namely a matching externality and a hold‐up externality associated with the bargaining strength of workers. The results depend on the relative importance of the two externalities and on worker risk aversion. “Flexicurity”, meaning low employment protection and generous unemployment insurance, can be optimal if workers are sufficiently risk‐averse and the hold‐up problem is relatively important.     

Fiscal Policy,Economic Integration and Unemployment

In this paper fiscal policy is examined for an open economy characterized by unemployment due to efficiency wages. We allow for capital and firm mobility in a model where the government chooses the level of wage, source-based capital and profit taxation. The taxing choices of governments are analyzed in scenarios which differ with respect to the constraints imposed on the set of available taxes and on the mobility of firms. As a general result, the welfare loss from labor market imperfections increases when tax bases become internationally mobile, which suggests an increasing relevance of domestic labor-market reforms when tax bases become global.     

North–South Outsourcing,Immigration, and Skilled Wages: Through the Lens of Incomplete Contracts

The forces of immigration and offshore outsourcing are subject to factors that leave sufficient room for incompleteness in a contract. The authors present a model that allows one to compare the effects of immigration and offshore outsourcing, on skilled wage, when both are subject to contractual incompleteness. They capture the sensitivity of the effect on the skilled wage, of immigration and offshore outsourcing to complementarities between firm‐specific human capital and human capital that is transferable across firms manufacturing intermediate goods. In particular, the authors show that the North–South gap in skilled wages is likely to (i) increase through the forces of immigration when the intermediate goods' technology is super‐modular in the North but sub‐modular in the South and (ii) decrease through the forces of outsourcing when the intermediate goods' technology is sub‐modular in the North but super‐modular in the South.     

Relative wages and trade-induced changes in technology

We develop a model where trade liberalization leads to skill-biased technological change, which in turn raises the relative return to skilled labor. When firms get access to a larger market, the relative profitability of different technologies changes in favor of the more skill-intensive technology. As the composition of firms changes to one with predominantly skill-intensive firms, the relative demand for skilled labor increases. This way, we establish a link between trade, technology and relative returns to skilled and unskilled labor.     

Public firms' merger,employment, and welfare in developing countries: A general equilibrium analysis

This paper examines the effect of a merger of state‐owned firms on wage gap, employment, and social welfare in a general equilibrium setting. For a developing economy with state‐owned firms in the urban sector, a merger via a reduction in the number of the urban state‐owned firms can reduce the cost of capital. It then lowers the skilled wage rate through the factor‐substitution effect, while it raises the unskilled wage by the inflow of capital to the rural sector and hence lowers urban unemployment. In addition, the reduction in the number of the urban state‐owned firms can yield a scale effect to the firms. The beneficial effects on higher urban output and less urban unemployment can improve social welfare of the developing economy.     

Gender Bias in Education: the Role of Inter-household Externality, Dowry and other Social Institutions

We analyze gender bias in school enrollment by developing a two‐period model where women become part of extended families of their in‐laws. Each family decides how many sons and daughters are sent to school and thus become skilled. Gender bias occurs due to failure of the families to internalize inter‐household externalities. “Groom‐specific” dowry worsens the situation. Under “bride‐specific” dowry, bias exists if and only if the skill premium in the labor market is bigger than that in the marriage market. A specific discriminatory “food‐for‐education” policy is shown to reduce bias, but increase total enrollment.