Labour unions and leverage: evidence from firm-level union data

ABSTRACT

Using firm-level labour union data from Japan, this paper investigates the effect of labour unions on firm leverage. We find that as union coverage increases, both the level of and extent of change in leverage decreases. These relations remain robust when a firm falls into deficit. We also find that firms with higher union coverage have a higher interest coverage ratio. In addition, we find that firms with higher union coverage are less likely to choose issuing debt compared to issuing equity when they face financial distress. Our results imply that significant employee influence enhanced by labour unions increases fixed costs, crowds out the firm’s debt capacity and consequently reduces the firm’s leverage.     

A model of periodic job training

This paper examines conditions under which a demand-constrained, cost-minimizing firm will provide industry-specific on-the-job-training to its employees, when a flexible stock of outside labor is available for hire. The term industry-specific is used to describe training with general components valued by other firms in the industry. This definition of on-the-job-training offers the possibility that trained workers could be poached by competing firms and provides limited opportunities for newly trained workers to seek alternative employment. The firm's decisions involve whether or not to invest in on-the-job-training, and whether to use in-house labor exclusively or a mix of in-house and outside labor. The cost-minimizing strategy is crucially dependent upon the mutual loyalty of the firm and its workers.This paper has benefited from numerous comments from the participants of the 41st International Atlantic Economic Conference in Paris, March 12–19, 1996.     

Attracting responsible employees: Green production as labor market screening

Corporate social responsibility can improve firms’ ability to recruit highly motivated employees. This can secure socially responsible firms’ survival even in a highly competitive environment. We show that if both socially responsible (green) and non-responsible (brown) firms exist in equilibrium, workers with high moral motivation, who shirk less than others, will self-select into the green firms. If unobservable effort is sufficiently important for firm productivity, this can drive every brown firm out of business—even in the case where many workers have no moral motivation whatsoever.     

The determinants of cleaner energy innovations of the world’s largest firms: the impact of firm learning and knowledge capital*

In this paper, we address the determinants of clean energy inventions by 946 large firms. We use a new set of large firms’ patent portfolios and we broaden and deepen existing literature on this issue in two main ways: first, we conduct our study directly at the firm level and not at the industry or national levels and second, we do not focus on a single industry but encompass all industrial sectors. Drawing on firm (internal and external) knowledge and knowledge accumulation, we show there is a robust positive association between the (past) knowledge accumulated capital related to clean technologies and the number of inventions produced in that field, even after controlling for industry and nation fixed effects and other factors. The same relation works for (past) knowledge-accumulated capital in other (non-clean) technologies. However, the relation’s impact on the number of clean inventions produced is much lower. The magnitudes of our coefficient are in line with that obtained previously on firms in the auto-industry or at the sectoral level.     

Labour Mobility and Returns to Experience in Foreign Firms*

This paper uses Finnish linked employer–employee panel data to study whether employees are able to appropriate returns to knowledge accumulated in foreign‐owned firms when moving to domestic firms. The estimates indicate that highly educated employees earn a return to prior experience in a foreign‐owned firm, which is over and above the return to other previous experience. These employees do not appear to pay for the knowledge they accumulate in the form of lower starting wages in foreign‐owned firms.     

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.     

Why the incidence of shirking varies across employers

Existing models of shirking are not consistent with the underlying behavior of employers and employees. In these models, either shirking does not occur in equilibrium or it may occur but the offending employee is immediately dismissed. These conclusions conflict with evidence that shirking is sometimes ignored by firms for many years. To resolve this conflict, the author models the interaction between employer and employees as a finite repeated game, and introduces the quasi-fixed costs of dismissing and replacing an employee. Shirking is distinguished from more serious malfeasant behavior by the criterion of imposing current period costs on the employer that are less than the cost of dismissing and replacing a shirking employee. When both the employer and the employees are rational and there are no informational asymmetries, shirking is not deterred by threat of dismissal. Introducing informational asymmetries leads to an equilibrium where shirking is deterred, to a great extent, by the dismissal threat. Comparative static analysis of the model yields testable implications on the incidence of shirking across firms, and contributes to our understanding of other labor market issues.     

Multinational firms,acquisitions and job tasks

We revisit the question how inward FDI and multinational ownership affect relative labor demand. Motivated by the recent literature that distinguish between skills and tasks, we argue that the impact of multinational and foreign ownership on the demand for labor is better captured by focusing on job tasks rather than education. We use Swedish matched employer–employee data and find that changes of local firms to both foreign and Swedish multinationals increase the relative demand for non-routine and interactive job tasks in the targeted local firms. Hence, in a high-income country, both inward and outward FDI have a task upgrading impact on local firms. The effect is primarily driven by wage effects leading to increased wage dispersion for workers with different non-routine and interactive task intensity. We also show that the effect is not the same as skill upgrading since dividing employees by educational attainment does not capture changes in the relative labor demand. Hence, our results suggest a new aspect of the labor market consequences of FDI.     

Is hedging successful at reducing financial risk exposure?

This article analyses whether firms use risk management instruments for hedging or speculative purposes. First, by analysing the relationship between the firm’s stock returns and financial risks in 567 Euronext firms, we measure the firm’s exposure to risk. Next, we investigate the effect of hedging in such exposures, addressing simultaneously the endogeneity of hedging decision through a treatment effect methodology. We have found that firms in our sample display higher percentages of exposure, when weighed against preceding studies, and confirmed that hedging reduces the level of the underlying financial exposure, concluding that firms use risk management instruments with hedging purposes.     

Equilibrium Wage Dispersion,Firm Size,and Growth

This paper analyzes a model of equilibrium wage dynamics and wage dispersion across firms. It considers a labor market where firms set wages and workers use on-the-job search to look for better paid work. It analyzes a perfect equilibrium where each firm can change its wage paid at any time, and workers use optimal quit strategies. Firms trade off higher wages against a lower quit rate, and large firms (those with more employees) always pay higher wages than small firms. Non-steady-state dispersed price equilibria are also analyzed, which describe how wages vary as each firm and the industry as a whole grow over time. Journal of Economic Literature Classification Numbers: D43, J41.     

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.     

Bargaining power and firm profits in asymmetric duopoly: an inverted-U relationship

This paper investigates the effects of bargaining power on downstream firms’ profits. Consider a vertically related industry consisting of one upstream and two downstream firms, the latter having different marginal costs. Each pair bargains over a linear wholesale price, and then the downstream firms engage in Cournot competition. We show that the inefficient downstream firm may benefit from an increase in the bargaining power of the upstream firm. Furthermore, we obtain similar results when each downstream firm trades with its exclusive upstream agent, under non-linear demand function, or when downstream firms compete in price.     

Adam Smith’s division of labor and structural changes

This paper considers two different cases of division of labor: (i) the subdivision of different operations in order to produce a particular product in a given firm or plant; (ii) the specialization of firms in the same industry. Division of labor of the former type is limited by demand for output of a particular firm or plant, while division of labor of the latter type is limited by demand for the industry as a whole. It is argued that, in the case of an industry producing a homogenous product, an increase in the scale of production of any particular firm is likely to be associated with changes in the internal division of labor. In the case of inter-firm division of labor, decreasing unit costs may result from lateral disintegration. Finally, in the case of an industry producing a composite commodity (that is, a commodity composed of many different sub-commodities), firms’, disequilibrium behavior may lead to concentration of each firm to fewer sub-commodities, in the anticipation of the entry of new firms, or as a result of it.     

Political openness and the growth of small and medium enterprises: empirical evidence from transition economies

This paper examines the growth determinants of small and medium enterprises (SMEs) in transition and emerging economies, with a specific focus on the growth effects of political openness. Our findings indicate that product and process innovation, foreign market exposure through exports, providing training programs for employees, and the education level of employees are important growth factors for SMEs in transition economies. We also find that democracy and political openness have an adverse impact on the growth prospect of SMEs in transition economies. On the other hand, the negative effect of political openness on firm growth is decreasing as the proportion of the firm’s labor force with a university degree increases—a finding suggesting that the collective bargaining of low-skilled workers may hinder the growth of small firms in transition economies.     

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.     

INTERNATIONAL WELFARE AND EMPLOYMENT LINKAGES ARISING FROM MINIMUM WAGES*

We formulate a two‐country model with monopolistic competition and heterogeneous firms to reconsider labor market linkages in open economies. Labor market imperfections arise by virtue of country‐specific real minimum wages. Abstracting from selection of just the best firms into export status, standard effects on marginal and average firm productivity are reversed in our model, yet there are significant gains from trade arising from employment expansion. In addition, we show that with firm heterogeneity an increase in one country’s minimum wage triggers firm exit in both countries and thus harms workers at home and abroad.     

基于判别分析的内部控制重大缺陷预测研究

公司破产风险、财务舞弊事件通常与内部控制重大缺陷存在密切关系,研究内部控制重大缺陷判别方式具有重要意义和价值。本文以深交所2007—2008年138家内部控制重大缺陷公司与138家非重大缺陷公司为样本,采用逐步判别分析法构建内部控制重大缺陷判别模型,帮助监管方、外部投资者等更好地预测内部控制重大缺陷。研究表明,相比非重大缺陷公司,内部控制重大缺陷公司上市年限较长、规模较小、外部审计师变更更加频繁,盈利能力和成长性较差,但流动性、营运能力指标的检验结果是混合性的。交互验证结果表明,模型预测准确率达到70%以上。     

Risk sharing and export performance with firm heterogeneity

We investigate how market uncertainty affects the export performance of a firm through financial frictions. We first extend Melitz's (2003) heterogeneous firm trade model by incorporating demand shocks, linking the demand uncertainties to the financing costs of firms. In this extension, the default probability is endogenously determined by a firm's productivity and demand uncertainty. Hence, firms with higher productivity or lower market uncertainty are offered lower interest rates and thus show better export performance. As an application, we also show that a risk-sharing mechanism, that pools default risk for a certain group of firms, lowers the default risk. This mechanism allows banks to charge lower interest rates to the member firms and therefore ultimately improves their export performance in both extensive and intensive margins. We find a real-world example of such a mechanism from business groups in Korea. Using Korean firm-level data, we show that the more diversified the business group, the greater the likelihood that its member firms export and the bigger their export revenues. We also show that our results are robust to alternative explanations for Korean business groups’ export competitiveness.     

Does Openness Increase the Efficiency of China’s Manufacturing Firms? Evidence from the World Bank Investment Climate Survey

Based on the World Bank Investment Climate Survey, this paper investigates the openness effects on the efficiency of firms in China’s manufacturing industry using a two-step data envelopment analysis (DEA) approach. In the first step, the aggregate efficiency of open firms and non-open firms is compared in each sub-industry using a group-wise heterogeneous bootstrap procedure. The results show, at a 90% confidence level, that open firms are more efficient than non-open firms in four out of five sub-industries. Furthermore, in the second step, we employ the two-stage bootstrap DEA approach to more specifically evaluate the effects of openness on the efficiency of firms. The regression results show that three openness indicators (foreign capital, import and export) have strong positive effects on firms’ efficiency in China’s manufacturing industry. In addition, the results also suggest that a larger state share, larger firm size, and more capital stock are negatively related to the efficiencies of firms, while a firms’ learning and absorptive capacity is positively related to its efficiency.