Presentations on Business Economics
1 William Kerr, Harvard University, "Do Employment Protections Reduce Productivity? Evidence from U.S. States"
David H. Autor, MIT and NBER, William R. Kerr, Harvard Business School, and Adriana Kugler, University of Houston and NBER
Theory predicts that mandated employment protections reduce productivity by distorting production choices. Firms facing (non-Coaseian) worker dismissal costs will curtail hiring below efficient levels and retain unproductive workers, both of which should adversely affect total factor productivity. These theoretical predictions have not, to our knowledge, been tested. We use the adoption of wrongful-discharge protections by U.S. state courts over the last three decades to evaluate the link between dismissal costs and productivity. Drawing on establishment-level data from the Annual Survey of Manufacturers and the Longitudinal Business Database, we find that wrongful-discharge protections significantly reduce employment flows, particularly in sectors with volatile employment. Preliminary analysis of plant-level data, however, reveals no significant effects of wrongful-discharge protections on productivity. We speculate that either these costs are too small to detect or that employment protections may provide offsetting productivity benefits, perhaps in the form of increased worker effort or greater human-capital acquisition for matches expected to last longer.
2 Wayne Gray, Clark University, "The Environment Performance of Polluting Plants: A Spatial Analysis"
Wayne B. Gray, Clark University and NBER, Ronald J. Shadbegian, University of Massachusetts, Dartmouth and US EPA, National Center for Environmental Economics
This paper combines data from EPA and Census databases to test for spatial components in plant-level models of environmental performance, measured by air pollution compliance, air toxic releases and conventional air pollutants. Our results indicate a significant, but limited, role for spatial factors in modeling environmental performance. We find positive spatial autocorrelation in compliance for plants within the same state, but these effects do not cross state borders. These spatial effects in compliance are explained in large part by spatial patterns in the explanatory variables. Models which directly incorporate spatially- lagged compliance status in the estimation find small effects for those spatial lags, though their inclusion does raise the significance level of some of the other spatially-explicit explanatory variables. No such spatial effects are observed for toxic releases or emissions, and few variables show significant impacts on either toxic releases or air emissions, perhaps due to small sample size or sample heterogeneity.
Plant-specific characteristics matter, with larger, older, and more pollution-abatement-intensive plants showing less compliance. Inspection activity has the expected signs (though not always significant): more inspections at the plant, at nearby plants, and at plants in the same state is associated with greater compliance. Comparisons across the inspection measures suggest that general deterrence effects may be as important as those for specific deterrence. Again, state borders are important - inspections at nearby plants in other states do not increase compliance, thereby showing a significantly different effect from inspections at nearby plants in the same state.
3 Allan Collard-Wexler, Northwestern University, "Plant Turnover and Demand Fluctuations in the Ready-Mix Concrete Industry"
Demand for a plant's products varies from year to year, causing some plants to exit a market and other to enter. Would eliminating these fluctuations significantly reduce plant turnover? A structural model of entry and exit in concentrated markets is estimated for the Ready-Mix concrete industry, using plant level data from the U.S. Census. The Aguiregabierra and Mira technique is used to find parameters which rationalize behavior of firms involved in repeated competition. Due to high sunk costs, turnover rates would only be reduced by 10% through eliminating demand fluctuations at the county level, saving around 50 million dollars a year in scrapped capital.
4 Mo Xiao, University of Rochester, "The Impact of Minimum Quality Standards on Firm Entry, Exit and Quality Choices: The Child Care Market"
V. Joseph Hotz, UCLA and NBER
Mo Xiao, University of Rochester
We examine the impact of minimum quality standards on the supply side of the child care market, using a unique panel data set merged from the Census of Services Industries, state regulation data, and administrative accreditation records from the National Association of Education for Young Children. We control for state-specific and time-specific fixed effects in order to mitigate the biases associated with policy endogeneity. We find that the effects of quality standards specifying the labor intensiveness of child care services are strikingly different from those specifying staff qualifications. Higher staff-child ratio requirements deter entry and reduce the number of operating child care establishments. This entry barrier appears to select establishments with better quality into the market and alleviates competition among existing establishments: existing establishments are more likely to receive accreditation and higher profits, and are less likely to exit. By contrast, higher staff-education requirements do not have entry-deterrence effects. They do have the unintended effects of discouraging accreditation, reducing owners' profits, and driving firms out of businesses.
Presentations on Markets and Behavior
5 Shihe Fu, Boston College, "What Has Been Capitalized Into Property Values: Human Capital, Social Capital or Cultural Capital?"
Urban amenities can be capitalized into land values or property values. However, little attention has been paid to the capitalization of social amenities. This paper classifies three types of social-interaction-based social amenities: human capital, social capital, and cultural capital at residential neighborhood levels. We use the restricted version of the 1990 Massachusetts census data and estimate hedonic housing models with social amenities. The findings are as follows: (1) Human capital has significant positive effects on property values. This tests the Lucas conjecture. (2) Different types of social capital have different effects on property values: an increase in the percentage of new residents has significant positive effects on property values, probably due to the strength of weak ties. However, an increase in the percentage of single-parent households has negative effects on property values. An increase in the home ownership rate has positive effects at large geographic levels. (3) Cultural capital's effects vary from high to low geographic levels; the effects of English proficiency and racial homogeneity are positive at and beyond the tract level, but insignificant at the block level. This may imply that cultural capital is more important in social interactions at large geographic scale.
6 Dean Lillard, Cornell University, "To Quit or Not to Quit: An Economic Analysis of Women's Smoking Cessations Decisions"
Donald Kenkel, Dean Lillard, and Alan Mathios, Cornell University
Smoking is the leading preventable cause of death in the U.S., contributing to more than 400,000 deaths annually. A recent public health initiative, Healthy People 2010, aims to cut the prevalence of smoking among adults in half, from the current rate of about 24 percent to 12 percent. While recent policy debates have tended to focus on how to prevent youth from starting to smoke, a recent analysis concludes that the Healthy People 2010 objective cannot be met without large increases in smoking cessation rates (Mendez and Warner 2000).
Moreover, encouraging and helping current smokers to quit is a very promising route to improve public health. Research indicates that within five to 15 years of quitting there are large and statistically significant reductions in heart disease, stroke and lung cancer (USDHHS 1990). Despite these clear gains to quitting, the rate of quitting in the U.S. appears to be stalled. Hughes et al. (1999) report that the percentage of ever-smokers who have become ex-smokers in the U.S. increased steadily from 1960-1990. But this increase did not continue from 1990-1995, despite increases in cigarette excise taxes and the introduction of new smoking cessation products. This trend is especially troubling in light of the recent increase in the number of young smokers who will soon become or have become adult smokers.
We explore smoking cessation decisions among a cohort of young women who began smoking in the 1960s, about the time the U.S. began to step up its anti-smoking campaign. We use retrospective smoking histories from a large nationally representative panel data set, the Young Women Cohort of the Original Cohort Databases of the National Longitudinal Study. The core data consist of a panel of young women who were first surveyed in 1968 and subsequently re-surveyed nineteen times, slightly more often than every other year, until 1999. The period from 1968 to 1999 witnessed a variety of anti-smoking measures, including multiple hikes in the federal and many states' cigarette excise taxes, new Surgeon General's reports on the health consequences of smoking and the benefits of quitting, new cigarette warning labels, and the introduction of new pharmaceutical products that help smokers quit. By appending information on cigarette prices and taxes by state, as well as other policy measures, we will be able to estimate discrete time hazard models that include many key determinants of quitting decisions. In addition to the policy measures, the strengths of the data include: repeated observations of the same individual; data on each person's full smoking history that allow us to separately distinguish the role of age and duration of habit in determining quit rates; a rich set of life-cycle events and other socioeconomic variables such as marital breakup, pregnancy, and family structure; and the ability to control for omitted factors which might otherwise lead to biased estimates of the effects of key policies. In the preliminary analysis reported below, we focus on the role of prices, smoking duration, pregnancy, and a limited number of socioeconomic factors.
7 Kevin McKinney, Census Bureau, "Immigrant Arrival Cohorts and their Wage Growth in the U.S. Labor Market: New Evidence from Longitudinal Employer - Employee Data"
Using earning history data for persons' working in twenty-two states during the 1990s and early 2000s, I compare the labor market performance of Mexican and all other foreign-born workers with natives. The use of longitudinal linked employer-employee data to estimate immigrant cohort effects and wage growth represents a significant advance relative to previously available data. Compared with cross-section analyses and synthetic panel approaches, biases resulting from out-migration and uncontrolled for error components should be greatly reduced.
I find that immigrant wage growth is consistently lower for immigrants relative to natives; however this lack of wage growth over time is offset by a large fixed person specific wage component. Earnings of male immigrant cohorts are found to have generally declined over the last half of the 20th century, while immigrant female cohorts' earnings have increased.
8 Lars Vilhuber, Cornell University, "The Link Between Human Capital, Mass Layoffs, and Firm Deaths"
John M. Abowd, Cornell University
Kevin L. McKinney, U.S. Census Bureau/California RDC
Lars Vilhuber, Cornell University
The fairly sizable economics literature on displaced workers has typically concentrated on the effects of displacement on worker outcomes. The analysis typically occurs at the level of a single plant or a sample of workers, for whom the displacement event itself is a given. A mostly separate and distinct literature considers the causes of firm or plant exit (death), and reductions in employment levels (downsizing). The usual culprits for firm exits are size, age, innovations, market structure and efficiency. Few authors explicitly link the micro-level movement of workers with death and downsizing at either the plant or firm level. In this paper, we correlate firm-level measures of human and physical capital (capital intensity), as well as measures of efficiency (sales per worker) with displacement events. We differ from the literature in our use of a measure of human capital, rather than a direct measure of wages, and we consider the effect of the distribution of human capital within a firm on both displacement and firm-death outcomes.
Presentations on Finance and Investment
9 T. Lynn Riggs, Chicago Census RDC, "Location of Financial Services"
While entrepreneurs and new business entry have long been viewed as key components to a healthy economy, new evidence suggests that new business entry is a key factor in local economic growth. Acs and Armington (2003) found new business entry to be a significant contributor to employment growth for all sectors, except manufacturing. However, much of the previous research on employment growth has been conducted using data from manufacturing, so the true impact of new firm growth had not been fully realized in the past. Financing for small businesses, then, seems crucial to promoting economic growth and development. Major legal, technological, and structural changes over the last 30 years in the financial services sector, especially banking, have radically changed this industry and have caused concern about the impact of these changes on business, especially new business lending.
Theoretical discussions about business lending typically refer to credit markets in general, and the literature on small business financing indicates that a significant amount of capital is obtained by owners from personal and informal sources (e.g., family, friends) as well as from non-bank financial lenders (e.g., insurance companies). Still, the evidence typically depends on data specific to banking, and these data are typically based on firm-level characteristics of the bank that are not necessarily specific to establishments in the local area.
This paper is focused on describing the financial services sector in the United States and the evolution of this sector over time, both nationally and locally. While the analyses in this paper include the banking sector, the intent is to describe the financial services available more generally, especially moneylenders typically outside the mainstream financial sector (pawn shops, check cashing stores). Further, these analyses are based on establishment-level data and allow for a closer examination of local markets.
10 Pinar Geylani, Duquesne University, "Linking Investment Bursts and Productivity: An Empirical Investigation"
Pinar Celikkol Geylani, Duquesne University
Spiro E. Stefanou, Pennsylvania State University
Quantifying the importance of factors driving productivity growth such as changes in technology and identifying the relationship between productivity and investment are challenging tasks and have been only partially successful to date. The major complication arises from the causality in the relationship between investment and productivity. Productivity growth implies resource use decisions can impact the quantity of resources available for new production planning, in particular, and activities, in general. Some of these changes may involve doing the same thing more extensively (i.e., extracting scale economies) and some of these changes may involve doing things differently (i.e., introducing new equipment and processes).
A detailed empirical analysis at plant-level to gain a better understanding of the relationship between the decision to invest, productivity and plant characteristics can shed some light to this relationship. The main objective of this study is to investigate the causal mechanism between investment and productivity in a structural model using Census Bureau's Longitudinal Research Database at plant-level from 1972-1995 by focusing on Meat Products sub-industry of U.S. Food and Kindred Products Industry.
Capacity-improving investment activity is measured by lumpy investment using both absolute and relative measures. Plant investment age, which tracks the time between investment spikes, is calculated as the time elapsed since the plant's most recent investment spike.
We investigate the relationship between the decision to invest and productivity growth at plant-level by estimating a set of least-squares regressions with and without fixed effects where the dependent variable, productivity growth, is regressed against variables such as plant age, plant size, 4-digit industry, year, and lagged plant investment age variables. We run these models for the quartile groups of plants with respect to their TFP growth.
The results in the case of meat products sub-industry (SIC 201) indicates that the impact of investment age on TFP growth shows a positive trend, when we take all plants in the meat industry. For these plants, productivity increases gradually with investment over 9 years suggesting an efficiency gain (or learning effect). Investment installed by the beginning of the year alone leads to a 2.1% TFP growth for all quartile grouped plants. When looking at the plants based on their quartile ranking, the impact of investment bursts on TFP growth is the greatest for the lowest quartile ranked plants, with a 5.1% TFP growth increase one year after the installation of a lumpy investment. However, the pattern of TFP growth peaks after 5 years and then drops off with an inverted u-shaped pattern. For the middle-quartile ranked plants, the impact of investment bursts on TFP growth increases the first year after the installation of a lumpy investment and then exhibits a flat trend suggesting a quick efficiency gain/learning effect. For the highest quartile ranked plants, investment age coefficients are all insignificant suggesting no significant impact of lumpy investment on TFP growth, suggesting continuing operations serve the firm very well.
11 Debarshi Nandy, York University,"How is Value Created in Spin-Offs? A Look Inside the Black Box"
Debarshi Nandy, York University
Thomas Chemmanur, Boston College
Using a unique sample of plant level data from the Longitudinal Research Database (LRD), we identify (for the first time in the literature), how (the precise channel and mechanism), where (parent or subsidiary), and when (the dynamic pattern) performance improvements arise following corporate spin-offs. We identify the source of value improvements in spin-offs by comparing the magnitude of post-spin-off changes in the wages, employment, materials costs, rental and administrative expenses, sales, and capital expenditures in the plants belonging to firms undergoing spin-offs relative to the magnitude of such changes in a control group of plants belonging to firms not undergoing spin-offs. We show that the total factor productivity (TFP) of plants belonging to spin-off firms (parent or spun-off subsidiary) increase, on average, following the spin-off. This increase in overall productivity begins immediately, starting with the first year following the spin-off, and continuing in the years thereafter. This performance improvement can be attributed to a decrease in workers' wages, employment at the plant, decrease in the cost of materials purchased, as well as a decrease in rental and office expenditures, but not from improved product market performance by these plants. Further, such productivity improvements arise primarily in plants that remain with the parent; plants belonging to the spun-off subsidiary do not experience such productivity increases. However, contrary to speculation in the previous literature, plants that are spun-off do not under perform parent plants prior to the spin-off. Finally, in our split-sample study of plants that were acquired subsequent to the spin-off and those that were not, we find that productivity increases for both groups of plants: while such productivity increases start immediately after the spin-off for the non-acquired plants, for the acquired plants they occur only after being taken over by a better management team.
12 Shan He, Boston College, "The Going Public Decision and the Product Market"
Thomas Chemmanur and Shan He, Boston College; Debarshi Nandy, York University
At what point in a firm's life should it go public? How do a firm's ex ante product market characteristics relate to its going public decision? Further, what are the implications of a firm going public on its post-IPO operating and product market performance? In this paper, we answer the above questions by conducting the first large sample study of the going public decisions of U.S. firms in the literature. Our findings can be summarized as follows. First, a private firm's product market characteristics (market share, competition, capital intensity, cash flow risk) significantly affect its likelihood of going public. Second, private firms facing less information asymmetry and those with projects that are cheaper for outsiders to evaluate are more likely to go public (consistent with Chemmanur and Fulghieri (1999)). Third, IPOs of firms occur at the peak of their productivity cycle (consistent with Clementi (2002)): the dynamics of total factor productivity (TFP) and sales growth exhibit an inverted U-shaped pattern. Finally, sales, capital expenditures, and other performance variables exhibit a consistently increasing pattern over the years before and after the IPO. The last two findings are consistent with the widely documented-post-IPO operating underperformance of firms being due to the real investment effects of a firm going public, and inconsistent with underperformance being solely due to earnings management immediately prior to the IPO.