REGULATION AND JOB CREATION: AN ANALYSIS OF INSTITUTIONAL CHANGE AND ITS CONSEQUENCES

The study evaluates the impact of changes in price regulation, an important institutional feature of firms’ environments, on average human resource deployment levels among the United States local exchange telecommunications companies using contemporary historical data between 1988 and 2001. The data permit a natural experiment approach for the evaluation. Firms regulated via rate of return approaches have employed significantly less staff. These employment levels have been 15 percent lower than that of firms regulated via incentive regulation. The study is a direct test of a principal dynamic capabilities idea that firms reconfigure resources in the face of environmental changes to retain their competitive advantages. These results signify the importance of designing regulations possessing requisite incentive properties in enhancing firm level employment and support the key premises of the dynamic capabilities perspective.     

Employment and output effects of federal regulations on small business

This paper examines the disparate impact of US federal regulations on small businesses. Using a two-sector dynamic general equilibrium model, we obtained two implications of higher regulation on small firms that have yet to be empirically tested in the published literature. First, as regulations increase, small firms’ share of employment shrinks. Second, as regulations rise, small firms’ share of total output falls. Using a panel of industry-specific US regulatory restrictions, we found that a 10% increase in federal regulations was associated with an approximate 0.8% reduction in small firms’ share of industry employment and a nearly 1.5% decline in small firms’ share of industry output.     

How do firm characteristics affect the subsidies provided by the unemployment insurance system?

The experience-rated method of financing unemployment insurance in the US is incomplete because of the imposition of both maximum and minimum tax rates. The result is a pattern of cross-subsidization to those firms that generate considerable layoffs from those firms that exhibit a stable pattern of employment. Past studies have investigated this cross-subsidization by industries, but have not examined in detail whether or not the characteristics of the firm play an important role. The research presented herein examines the relationship between particular characteristics of the firm – age, size, average wage, and seasonality of employment – and their effect on whether the firm is subsidized or not. Other than the industry classification, age appears to be the most significant determinant of subsidization. It appears that both young and old firms display a higher probability of subsidizing middle-age firms.     

The effects of labor regulation on firms and exports: Evidence from Indian apparel manufacturing

We examine the impact of labor regulations on firm outcomes and explore their differential effects on exporters. Building on a conceptual framework developed from standard theory and a detailed qualitative study of India's apparel industry, our econometric analysis exploits establishment-level data on formal Indian garment manufacturers between 2009-10 and 2013-14 and interstate variation in labor laws. We find a close fit between the implications of our conceptual framework, the qualitative evidence and the data. Apparel producers in states with pro-worker labor regulations tend to replace labor with capital. This choice of technique effect is smaller for exporting firms, which are more tightly bound to norms for organizing production in global supply chains. Pro-worker labor regulations also reduce output levels more for exporters than for non-exporters, consistent with exporters being bound to international pricing norms. Labor regulations thus have a particularly adverse impact on exporters. Our findings underscore the cost of poorly-designed and implemented labor regulations in a labor-abundant country wishing to spur exports, employment and industrial activity in labor-intensive industries.     

Duration of new firms: The role of startup financial conditions,industry and aggregate factors

This paper documents the relative importance of firm, industry and aggregate factors on the post-entry performance of new firms. This study utilizes a unique administrative dataset, T2LEAP, which contains employment and balance sheet information for all incorporated Canadian firms. The data allow us to include financial variables such as the debt-to-asset ratio (leverage) and document their impact on firm survival. We perform duration analysis on all the entrant manufacturing firms during the period 1985–1996. In addition to leverage, we find that: firm characteristics such as size and labour productivity; industry conditions, such as the real exchange rate, the difference in the US–Canada tariff rates, entry penetration, and the capital–labour ratio; and aggregate conditions in terms of the yield gap also play a role in the survival prospects of new firms.     

Minimum safety standards with asymmetric safety costs

We explore the welfare effect of minimum safety standards, focusing on the case where duopoly firms are asymmetric in that they have different safety effort costs. If duopoly firms are symmetric, they do not provide enough safety to be socially efficient, and so imposing minimum safety standards can resolve this problem. We show, however, that imposing minimum safety standards may reduce the social welfare when there is a large asymmetry in the safety effort costs. In the unregulated equilibrium, the high-cost firm’s safety effort is smaller than that of the low-cost firm, and the high-cost firm is more likely to provide a larger safety effort than is needed to have a socially efficient level with larger asymmetry in the safety effort costs. If safety standards raise the high-cost firm’s safety effort, both firms’ safety efforts may end up further away from the socially efficient level: the low-cost firm reduces its safety effort when the rival’s effort increases because safety efforts are strategic substitutes.     

Public R&D subsidies,outside private support,and employment growth

In the aftermath of the passage of the American Recovery and Reinvestment Act of 2009, the employment effects of public subsidies have been scrutinized because of new emphasis on public accountability and transparency. In this paper, we investigate conditions in which public subsidies of research and development (R&D) in small firms stimulate employment growth. We find, based on an empirical analysis of employment growth induced by US Department of Defense Small Business Innovation Research program awards, that the stimulated employment growth is greater under two conditions: one, the presence of outside investors providing additional funding for the R&D and, two, when an exceptional amount of intellectual property is created by the publicly subsidized R&D. In addition to outside investors, other firms that make commercial agreements with the subsidized firm appear important for the employment growth of the subsidized firm. Cooperation between the small business doing the R&D and other firms is an important determinant of the commercial success of the technologies created with the support of public funds.     

Chinese firm and industry reactions to antidumping initiations and measures

China has been the subject of large numbers of both antidumping initiations and measures. This article explores the reactions of Chinese firms and industries to these actions by using dynamic system GMM estimator and industrial panel data on all Chinese firms in the industry, foreign firms operating within China and state-owned enterprises (SOEs) for aggregated firms group between 1997 and 2007. We find that antidumping actions by developed and developing countries negatively impact industrial profits and employee and firm numbers and also exports, but improve labour productivity. We also find that different kinds of firms show different responses. All firms together in an industry react to antidumping the most, and foreign and SOE firms show a much smaller response. Further, antidumping effects from different countries are different. Developed countries’ antidumping actions have more negative impact than developing countries’ actions; the effects of US actions are different from the European Union’s.     

Localised Technological Progress And Intra-Sectoral Structures Of Employment

In this paper we put forward a model that explains a firm's employment growth with the degree of technological efficiency and labour costs. To measure efficiency, we use a non-parametric linear programming method. DEA. The results of empirical analysis of 450 firms in 12 manufacturing sectors confirm that innovative firms experience stronger employment growth. Because the demand growth effect of technological leadership outweighs the factor saving effect, firms which m technological leaders are in most cases the creators of jobs. Technologically backward firms, on the other hand, have few options to compensate their demand loss probably caused by deteriorating competitiveness. Consequently, their employment growth is relatively weak. The employment growth additionally depends on the type of factor combination, i.e. the technological trajectory chosen by an individual firm. The trajectory's effects vary significantly across industries. The effect of labour costs is generally negative. However, technologically leading industries are. less sensitive to increases in labour costs than nature industries.     

Entry,market turbulence and industry employment growth

This paper investigates the relationship between industrial dynamics in terms of firm entry, market turbulence and employment growth. Do entry of firms, the composition of industry dynamics (net entry) and market turbulence (entry and exit) influence industrial employment growth? This paper provides an empirical investigation, using unique data for 42 disaggregated Swedish industrial sectors during the period 1997–2001. It is hypothesised that the importance of entering firms, net entry and market turbulence may differ significantly across industries. A quantile regression method is used in order to detect industrial differences in the response to industrial employment growth. The empirical evidence shows that, on the one hand, firm entry and market turbulence have a positive effect on employment for fast growing industries and that the effect is larger for high growth industries. On the other hand, the composition of industry dynamics in terms of net entry rates has a more dispersed effect across all industries, even though the effect of net entry is larger for high growth industries.     

HOW TO COMPLY WITH ENVIRONMENTAL REGULATIONS? THE ROLE OF INFORMATION

The effectiveness of environmental regulation can be viewed as conditioned by the action of two main agents: regulated firms and public agency. Using a questionnaire on the pulp and paper industry in Portugal, this article finds that firms' decision to comply with environmental regulations is strongly influenced by firms' information on its legal obligations; this effect is stronger for smaller firms. Moreover larger/younger firms are less likely to comply with environmental regulations than smaller/older firms. Regarding the public agency's behavior, the authors find that greater monitoring efforts are directed toward larger/younger firms and toward those firms most likely to cause higher pollution levels. (JEL K32, Q28 )     

Firm size,employment risk and wages: further insights on a persistent puzzle

Recent inquiries into the observed positive relationship between wages and firm size suggest that unobservable characteristics give rise to a sorting of workers into large and small firms. Specifically, smaller firms tend to offer more unstable employment prospects and will tend to attract workers who are themselves unstable. As demonstrated by empirical analysis, the risk of permanent employment separation (i.e. the risk of firm failure) is in fact negatively correlated with firm size. Moreover, when this measure of employment risk is included as a determinant of wages, the independent influence of firm size on wages vanishes. These results suggest that firm size merely proxies for the risk of firm failure by capturing unobservable sources of heterogeneity in workers and firms.     

The devil dwells in the tails

This paper explores firm growth rate distribution in a Gibrat’s Law context. It is novel in two respects. First, rather than limiting the analysis to a focus on the conditional mean, we investigate the entire shape of the distribution. Second, we show that differences in the firm growth rate process between large and small firms are highly circumstantial and depend on the industry dynamics. The data used include more than 9,000 Danish manufacturing, services and construction firms. We provide robust evidence indicating that firm growth studies should concentrate less on explaining means and instead focus on other parts of the firm growth rate distribution.     

The reallocation of workers and jobs in Russian industry

Gross job and worker flows in Russian industry are studied using panel data from a survey of 530 firms selected through national probability sampling. The data permit examination of several crucial measurement issues, including the timing and definition of employment and the role of reorganizations, and they contain rich information on firm characteristics. We find that new and reorganized firms display larger flows than unreorganized enterprises. Product market dispersion and managerial and dispersed outsider ownership are associated with greater worker churning, and unionization and concentrated outsider ownership with less. There is little evidence that the average firm's employment adjustments have become more responsive to adjustment costs during the transition, but private ownership and product market competition appear to increase responsiveness. JEL Classifications: E24, J23, J63, P23, P31.     

Does industry self-regulation reduce pollution? Responsible Care in the chemical industry

Self-regulation programs, in which industry associations set membership codes beyond government regulations, are prevalent despite scarce evidence on their effectiveness. We examine Responsible Care (RC) in the US chemical manufacturing sub-sector, whose membership codes include pollution prevention, using our author-constructed panel database of 3,278 plants owned by 1,759 firms between 1988 and 2001. We apply two sets of instrumental variables to address a plant’s parent firm’s self-selection into the program, using: (i) the characteristics of other plants belonging to the same firm in our multi-plant sample; and (ii) firm participation in the industry association before the establishment of RC and industry-level RC participation in our full sample. We find that on average, plants owned by RC participating firms raise their toxicity-weighted pollution by 15.9% relative to statistically-equivalent plants owned by non-RC participating firms. This estimated increase is large relative to the yearly 4% reduction in pollution among all plants in our sample between 1988 and 2001. Moreover, RC raises plant-level pollution intensity by 15.1%. These results caution against reliance on self-regulation programs modeled on the pre-2002 RC program that did not require third party certification and in those sectors that lack independent third party certification.     

The Impact of Industry Structure and Penalty Policies on Incentives for Compliance and Regulatory Enforcement

This paper examines the optimal fine for violations of environmental regulations, taking into account financial constraints facing regulated firms and the hierarchical structure of regulatory enforcement. Contrary to the existing literature, which suggests that maximal fines are sub-optimal, we find that the optimal fine is either the maximum amount the firm can afford to pay or zero (i.e., no regulation). The impact of a change in industry structure on the optimal fine, firm compliance and regulatory resource strategies is considered. We identify conditions under which the equilibrium level of regulatory resources decreases with an increase in the number of firms in the industry.     

The impacts of suppliers and mutual outsourcing on organizational forms

We consider a downstream duopoly model with a monopolistic common supplier and mutual outsourcing between the two symmetric downstream firms. The market structure captures the recent procurement environment in the smartphone industry. We also incorporate managerial delegation into the duopoly model because deciding on organizational forms within a firm is critical to achieving better performance in almost all industries. There is an equilibrium in which only one of the firms delegates its downstream production to its sales manager. A delegating firm becomes less aggressive. The profits when both firms delegate can be higher than those when no firm delegates. Social welfare when both firms delegate can be smaller than that when no firm delegates.     

The Determinants of Firm’s Growth in the Telecommunication Services Industry: Empirical Evidence from India

The growth and evolution of the industry has an important bearing on the economic development of a country. The extant literature on firm growth provides valuable insights into firm behavior and factors influencing the evolution of the industry over time. The topic becomes even more relevant in the context of the telecommunication industry because of its positive impact on economic growth and productivity, which has been well documented in both the developed and developing country context. Based on the firm-growth literature, this study analyzes the factors influencing the growth of the Indian telecommunication industry using an unbalanced panel of 204 firms across two decades from 2000 to 2020. Dynamic Panel estimation technique (System GMM) is used to take care of endogeneity issues caused by the dynamic nature of firm growth models. Results indicate that the growth of firms in the Indian telecom services industry is explained by systematic factors like size, age, profitability, financial leverage, and trade orientation. The study finds that the larger firms grow at a decreasing rate compared to small firms. The firm's age negatively impacts the growth rate of firms, i.e., younger firms have a faster growth rate than the older ones supporting the case of convergence of firm growth in the Indian telecom services sector. Factors such as lagged R&D intensity, financial leverage, and profitability negatively impact the firms’ growth rate. Export intensity is found to have a negative and significant impact on the growth rate of the firms. The findings have important policy implications in the context of the growth of the telecommunication industry in India, which has witnessed intense competition, steep decline in profitability, and high debt structure over a period of time.

     

Growth and risk at the industry level: The real effects of financial liberalization

This paper analyzes the effects of financial liberalization on growth and volatility at the industry level in a large sample of countries. We estimate the impact of liberalization on production, employment, firm entry, capital accumulation, and productivity. In order to overcome omitted variables concerns, we employ a number of alternative difference-in-differences estimation strategies. We implement a propensity score matching algorithm to find a control group for each liberalizing country. In addition, we exploit variation in industry characteristics to obtain an alternative set of difference-in-differences estimates. Financial liberalization is found to have a positive effect on both growth and volatility of production across industries. The positive growth effect comes from increased entry of firms, higher capital accumulation, and an expansion in total employment. By contrast, we do not detect any effect of financial liberalization on measured productivity. Finally, the growth effects of liberalization appear temporary rather than permanent.     

R&D expenditures and firm growth – is small beautiful?

ABSTRACT

This paper examines how efficiently different groups of firms use their R&D expenditures. To this end, it investigates how the empirical relationship between firms' R&D expenditures and their sales growth varies with different values of firm size, firm age, and the number of firms in the respective industry. Using panel data for Switzerland ranging from 1995 to 2012, the paper finds that smaller, more mature firms show a more positive relation between R&D expenditures and sales growth than both relatively larger or younger firms. The paper argues that, on the one hand, these firms can benefit from various small size advantages in the R&D process, such as more motivated researchers, caused by a stronger connection to the firm's fate. On the other hand, these firms can also benefit from a well-established R&D department that allows absorbing the latest technological developments. The paper further finds that industries consisting of many small firms show a more positive relation between R&D expenditures and sales growth than industries consisting of only a few large firms. The intuition behind this result is that industries consisting of many small firms imply more independent innovative trials, which then together result in a higher probability of discovering successful innovations. In sum, the paper finds that groups consisting of a large number of small, more mature firms spend their R&D in the most efficient way.