THEORETICAL FOUNDATIONS FOR STICKY WAGES

Abstract. The paper compares three different types of theoretical explanation of 'sticky'wages. They are implicit contracts, efficiency wage models and insider/outsider models. It then reconsiders Keynes'rationale for sticky wages, which focuses on relative wage issues. Finally, the paper considers possible directions for future research.     

Insider,outsider and information heterogeneity

In financial markets, although the insider has superior information relative to the outsider, the outsider may possess some information the insider can’t precisely observe. This work investigates the impacts of information heterogeneity between the insider and outsider based on Foster and Viswanathan (1994). It shows that the less the insider knows about the outsider, the more she commits to aggressive trading, enabling her to earn more at the cost of outsider’s losses. Meanwhile, information heterogeneity improves the liquidity and benefits noise traders.     

INSIDERS AND OUTSIDERS IN UNION MODELS

Abstract. This paper examines the importance of distinguishing between 'insiders'and 'outsiders'in models of union-firm bargaining. In general, insiders are those workers already established in the firm, while outsiders are either unemployed or working in temporary, low-security jobs. Modifying traditional union models to take account of this distinction is straightforward in one-period models, where the union is assumed to be indifferent to the welfare of outsiders, but is much more complicated in dynamic models. Some of the predictions of insider-outsider models concerning wage rigidity and unemployment are not robust. However, the prediction that wages will depend on both insider and outsider forces is robust and appears to be supported by the empirical evidence. Furthermore, evidence from the U.S. suggests that insider power should not be viewed as a purely union phenomenon.     

Friend or foe? Employee ownership and CEO dismissal

This paper examines 2 research questions. First, does the level of employee stock ownership impact the likelihood of dismissing poorly performing chief executive officers (CEOs)? Second, does the level of employee stock ownership affect the likelihood of appointing an outsider or an insider after the dismissal of an incumbent CEO? We suggest that employee stock ownership reinforces the firm performance—CEO dismissal link because employee shareholders' welfare consisting of fixed claims (wages, bonuses, etc.), residual claims (dividends, increase in stock value, etc.), and human capital (generic and idiosyncratic) are highly linked to their firm performance. Moreover, under conditions of poor performance, employee shareholders are likely to favor an outsider CEO because he or she is more likely to initiate and implement drastic changes to the strategy of the firm, and therefore, he or she is more likely to improve firm performance. Drawing on a longitudinal sample of French firms, we find that employee stock ownership strengthens the negative relationship between firm performance and CEO dismissal likelihood. We find also that the higher employee ownership, the more likely that the underperforming CEO is replaced by an outsider. In contrast, employee ownership has no moderating impact on the likelihood of insider CEO appointment.     

Institutional monitoring,coordination and corporate acquisitions in China

Within the context of corporate acquisition decisions of China’s Publicly Listed Corporations (PLCs), this paper investigates the monitoring and coordination behaviour of institutional shareholders. Institutional shareholders are divided into four groups: large outsider, large insider, small outsider and small insider. The outsider and insider categorization, respectively, represents the absence of significant business links with relevant PLCs. In China, institutional shareholders tend to either monitor the acquisitions decisions of PLCs or coordinate their response with the controlling shareholders (coordination in the present context amounts to cooperation). Using micro data from China’s stock market over the 2003–2008 period, we find that (through ex-ante coordination with the controlling shareholders) the insider institutional investment tends to increase the likelihood of PLC acquisitions. However, through ex-ante monitoring of the PLC acquisition offers, the outsider institutional investment tends to decrease the acquisition likelihood. We find that, through ex-post monitoring of PLC acquisitions, institutional investors with large shareholdings can help improve the post-acquisition performance of Chinese PLCs. On the other hand, institutional investors with small shareholdings tend to coordinate their actions with the controlling shareholders. Accordingly, small institutional shareholders cannot affect the post-acquisition performance of China’s PLCs. Finally, we find that the so-called ‘cherry-picking effect’ exists only in the case of large outsider institutional investors.     

Risk aversion,public disclosure,and partially informed outsiders

In this paper, we examine the impact of public disclosure and partially informed outsiders on a risk-averse insider’s trading behavior, market efficiency, and market depth. In our model, under disclosure requirements, except for the final auction, market depth is the same at every auction. When informed outsiders are risk-neutral, in contrast to the case of a risk-averse insider with no informed outsiders, the insider is more concerned about the uncertainty about future price risk. When the number of informed outsiders increases, market liquidity improves, and the insider increases the variance of her random component to conceal her trading strategy. However, since the insider is relatively more risk-averse, she pays less attention to doing this on her own. Besides, the order flow provided by informed outsiders and randomly added by the insider injects additional liquidity into the market. When informed outsiders are risk-averse, compared to risk-neutral informed outsiders, an insider is most concerned about trading risks brought by informed outsiders at the beginning of trading. Furthermore, whether the trader is an insider or informed outsider, the more risk-averse trader has lower expected profits. Moreover, outsiders’ greater risk aversion leads to a smaller market depth.     

Board Composition and Organizational Performance: Two Studies of Insider/outsider Effects

This paper presents two studies that examine the commonly held belief that corporate boards are more likely to have positive effects on organizational performance when composed of outside directors. The first study – a meta-analysis of 63 correlations – indicates that, on average, the greater presence of outsiders is associated with higher performance, but so too is the greater presence of insiders. Instead of providing evidence of a positive outsider effect, these results suggest the existence of a curvilinear homogeneity effect in which performance is enhanced by the greater relative presence of either inside or outside directors. The second study – a hierarchical polynomial regression analysis of data from 259 large US companies – confirms the existence of a curvilinear relationship between insider/outsider composition and performance measured as return on assets.     

On-the-Job Learning and the Effects of Insider Power

Suppose insiders use their market power to push up their wages, while entrants receive their reservation wages. How will employment and productivity be affected? In addressing this question, we focus on the role of on-the-job learning. We show that on-the-job learning makes insider wage hikes less detrimental to average employment (over booms and recessions), and may even cause employment to be stimulated. Furthermore, such learning can make insider wage hikes more detrimental to average productivity.     

The Roles of Employer and Employee Characteristics for Plant Productivity

The relationships of worker characteristics and productivity are examined using a matched worker-plant data set from Finnish manufacturing. The panel data are used for estimating productivity and wage profiles according to average age, seniority, and education. We measure productivity using the multilateral total factor productivity index. We find that the wage returns to plant-specific seniority exceed productivity returns when seniority is high. This result supports the hypothesis that human capital is not firm specific, and seniority related wages are used for incentive reasons, but may also be a symptom of sorting or insider influences on wage formation. Plant average age improves productivity more than it increases wage when average age is low, but for higher ages the productivity and wage returns to age are fairly similar. The returns to education in terms of wage and productivity are fairly close to each other for higher levels of education, but mid-level education is underpaid.     

INTERNAL AND EXTERNAL FORCES IN SECTORAL WAGE FORMATION: EVIDENCE FROM THE NETHERLANDS

ABSTRACT The purpose of this paper is to investigate the relative importance of internal (sector-specific) and external (labour market) forces in sectoral wage formation in the Netherlands (1967–90). The results show that wages are largely determined by external forces, although internal forces are significant as well. The impact of the number of insiders, which plays a role in unemployment persistance, is not significant. Separate estimation results show that the impact of internal forces and of unemployment is weaker in the industrial sectors than in the service sectors. This casts doubt on the presumption that insider power increases the impact of internal forces on wage formation.     

DESIRABILITY AND SEQUENCE OF LIBERALIZATION AND STRUCTURAL REFORM POLICIES IN A MODEL WITH INFORMAL SECTOR

The paper develops a three-sector general equilibrium model with informal sector and examines the welfare effects of liberalization and structural reform in the presence of labor and capital market distortions. It attempts to determine a credible sequence of reforms that may be the most welfare-enhancing, since implementation of reforms in all the markets at a single stage may be neither feasible nor optimal. Foreign capital is welfare-improving only in the presence of labor market distortion, while welfare deteriorates if the capital market is distorted. While tariff and capital market reforms may be welfare-enhancing in the absence of labor market distortion, labor market reform may intensify the formal-informal wage gap and have a worsening effect on welfare in the presence of tariff distortion and capital market imperfection. One of the plausible sequences of reforms may be to initially undertake tariff reform followed by capital and labor market reforms, respectively.     

Foreign direct investment and global sourcing choices of firms in the US

This paper investigates factors affecting the global sourcing choices of firms in the US: (1) US investment abroad; (2) foreign direct investment in the US; (3) wage–productivity ratio; and (4) transaction cost. I found that there is a statistically significant association between the country of sourcing choices and foreign direct investment. Both the wage–productivity ratios and transaction costs are not statistically significant at the conventional significance level, but their regression coefficients show proper signs. The paper also examines the patterns of foreign direct investment among countries and compares transaction costs by income group. Copyright © 2000 John Wiley & Sons, Ltd.     

The Wage Inflation‐Unemployment Curve at the Macroeconomic Level

Based on the reduced form New Keynesian Wage Phillips Curve, we estimate wage rigidity and indexation at the aggregate level in several advanced countries for the 1985–2014 period. We document that the wage setting process is heterogenous among our sample of countries: nominal wage rigidities are more important in the United States, while wage indexation is dominant in European Countries. We also present evidence that indexation to past inflation has decrease as inflation stabilizes at lower levels. In addition, our results suggest that wage rigidity is not linked to the institutional environment at the macroeconomic level. Finally, we show that there is significant time variation in the estimated coefficients on the implied equation that is usually not taken into account in the theoretical literature.     

An investigation of causality between insider transactions and stock returns

Prior research shows that corporate insiders engage in profitable transactions by trading securities of their own firms. The main purpose of this study is to examine whether insider transactions and stock returns have causality relationships at the firm level for a sample of 2,521 firms during the period 1988 to 1998. We find a large impact of stock returns on subsequent insider transactions at both the aggregate and firm levels. The impact appears to be negative which suggests that insiders buy after stock price decreases and sell after stock price increases. Our findings on the predictive content of insider transactions for subsequent stock returns are primarily consistent with prior literature. We observe a positive but weak relationship between insider transactions and future stock returns.     

Are China's HSR tariff affordable and economic equitable? An international comparison perspective

While the issues of high-speed rail (HSR) tariff and its impact on equity have always been a hot topic in China, which also attracted the attention of international researchers, research on the level of HSR tariff from the perspective of individual affordability and equity issue have scarcely been considered. This study therefore aims to fill the research gap by quantifying the HSR relative tariff level and its impact on income/regional distribution via introducing a HSR affordability index.Based on the index, we calculate the HSR affordability levels of the main international sample countries with the order of magnitude. Then we expand the analysis of HSR affordability level according to differentiated HSR pricing practice in the selected countries. At the same time, we compare the HSR tariff impact on economic equity among different countries, regions, and social classes.The result indicates that although the absolute level of HSR tariff is low, China is generally in the middle/the lowest and unbalanced position among the sample countries on HSR affordability in terms of expensiveness and economic equity. When we considered the differentiated tariff policy implemented in Europe and Japan, the affordability gap between China and the other countries is further enlarged. Moreover, inequitable distribution of HSR affordability between different income groups and social classes are found larger not only within China, but also higher when compared to the other sample countries.Finally, we conclude that China should implement differentiated HSR pricing system at a larger scale and greater extent based on the Ramsey pricing and Yield management principle to grasp the additional revenue from the high level income group/the developed region and alleviate the economic equity as well. Meanwhile, we also suggest the balance between HSR affordability for passengers themselves and the macro financial affordability for the country as a whole should also be considered in the future HSR pricing regime formulation.     

权变奖励领导行为如何促进员工建言行为——内部人身份认知和心理安全感的作用

权变奖励领导行为是非常重要的领导行为之一,已有的研究证明权变奖励领导行为对员工的态度和行为有着积极的促进作用。基于自我归类理论,通过员工对内部人身份的认知效应,探讨权变奖励领导行为和员工建言行为之间的内在机制,并通过社会信息加工理论来探讨心理安全感在此过程中的调节效应。选取了上海市6家企业共321名员工为样本,运用区间估计Bootstrap法和Johnson-Neyman法进行数据分析和假设验证。结果表明:(1)权变奖励领导行为和员工建言行为正相关;(2)内部人身份认知在权变奖励领导行为和员工建言行为之间起中介作用;(3)心理安全感调节了权变奖励领导行为与内部人身份认知的关系,并进一步调节权变奖励领导行为通过内部人身份认知对员工建言行为的间接影响效应。     

Setting the minimum wage

The process leading to the setting of the minimum wage so far has been overlooked by economists. There are two common ways of setting national minimum wages: they are either government legislated or the byproduct of collective bargaining agreements, which are extended erga omnes to all workers. We develop a simple model relating the level of the minimum wage to the setting regime. Next, we exploit a new data set on minimum wages in 68 countries having a statutory national minimum level of pay in the period 1981–2005. We find that a Government legislated minimum wage is lower than a wage floor set within collective agreements. This effect survives to several robustness checks and can be interpreted as a causal effect of the setting regime on the level of the minimum wage.     

Austria and the Single European Market

The economic consequences—global and on a sectoral level—of the full participation of Austria in the process of economic integration in Europe are assessed with the help of the INFORUM system of interlinked input–output models and the Austrian model in this family, i.e. AUSTRIA IV. The results of two scenarios up to the year 2000 are compared. One scenario is based on the assumption of the full participation of Austria in the process of European integration. The alternative scenario is based on the hypothesis that Austria has to remain in an outsider position. The analysis shows quite relevant positive consequences of full participation by Austria in the process of European integration. Because of compensating forces, the effects on a sectoral level are much more pronounced than those on the global level. The structural implications on output, employment, etc. are quite remarkable.     

The Resource Dependence Role of Corporate Directors: Strategic Adaptation of Board Composition in Response to Environmental Change

Most research on corporate directors has focused on two roles: agency and resource dependence. While these two roles are theoretically and practically distinct, previous research has used the same classification scheme for measuring board composition regardless of role examined. Our paper examines the resource dependence role of directors and posits that the widely used insider/outsider categorizations do not adequately capture this role of directors. A taxonomy of directors is presented specifically for studying the resource dependence role. We then apply the taxonomy to a sample of US airline firms undergoing deregulation, and examine how board composition changes parallel the changing resource dependence needs of the firms. We conclude that the board's function as a link to the external environment is an important one, and that firms respond to significant changes in their external environment by altering board composition.