Financialization and Its Entrepreneurial Consequences

Examines the financial sector's rise in relative economic importance and its impact on science and engineering employment and entrepreneurship. Explores new firm formation and performance and capital allocation under a scenario with a smaller sector

Human Capital and Economic Growth : Dynamic Implications of Insider-outsider Problem for Macroeconomics

This paper considers a dynamic model with human capital accumulation, for which both firm-specific skills and general skills are sources of growth. We analyze how the existence of firm-specific skills changes the effects of productivity shocks on economic growth. It is well known that the insider-outsider problem can cause employment inertia in the macro economy because workers with firm-specific skills (insiders) face the hold up problem. However, most previous studies have been static in nature, so that they have paid little attention to dynamic interactions between firm-specific skills and general skills during the adjustment to the new steady state. This paper considers dynamic models that involve creation of human capital from both firm-specific skills and general skills. We show that the insider-outsider problem that is generated through the creation of firm-specific skills can cause a dramatic decline in the youth labor force during a transition path to the steady state. We also show that the problem may result in a temporary economic downturn even if the shock is positive. In Japan, since the mid-1990s, there has been a dramatic increase in the unemployment rate and a substantial decrease in the working population ratio together with increased irregular employment among young people. By analyzing firm-specific human capital as an engine of economic growth, this paper shows that these trends are consistent with our dynamic model. It also demonstrates that the productivity shocks might explain recent dramatic declines in youth employment and temporary declines in growth rates.firm-specific human capital, labor markets, insider-outsider problem

Global Engagement and Returns Volatility

This paper finds that a greater reliance on foreign market sales increases the volatility of firms’ stock returns, using high-frequency data for publicly listed Japanese manufacturing firms over the period 2000–10. The two margins of global engagement we consider, namely, exports and sales via foreign affiliates (horizontal foreign direct investment), have both a positive and economically significant effect on firm-level volatility. We find, however, that increasing the intensity of sales through foreign affiliates has a stronger effect on volatility than a similar change in export intensity. We also uncover evidence consistent with the notion that firms’ need to use external finance to cover the substantial costs involved in reaching foreign consumers can be an important channel through which firms’ participation in international markets increases their exposure to economic uncertainty

Giant Firms in the Information Economy

The primary objective of this paper is to present a discussion of the potential significance of giant companies in the emerging new information economy. In the 1970s and discussion of the significance of giant firms would be somewhat uncontroversial. Within economics, the work of, for example, Prais (1976) established empirically the central position of giant firms in market economies. From a more interdisciplinary perspective, theorists (particularly Marxist inspired writers) emphasised the development of a monopoly based capitalism (for example, Baran and Sweezy, 1968; Cowling, 1982). But more recently these established or stylised facts have been questioned. As discussed below, an explicitly small firms literature has developed. This literature is frequently linked to claims that the changing dynamics of modern market economies have undermined the position and significance of giant firms. Other writers, for instance the sociologist Castells (1996) links the very same dynamics to a continued role for giant firms in a globalised world

Knowledge-based industry and regional growth

One of the most important but less understood phenomena in the beginning of the 21st century has been a shift toward knowledge-based economic activity in the comparative advantage of modern industrialized countries. Two broad trends has been observed in the global economy. That is, the output from the world's science and technology system has been growing rapidly and the nature of investment has been changed (MILLER, 1996). The relative proportions of physical and intangible investment have changed considerably with the relative increase of intangible investments since the 1980s. In addition, there has been increased complementarity between physical and intangible investments and more important role of high technology in both kinds of investment (MILLER, 1996). Even in the newly industrialized countries, the growth of technology intensive industries, the increase of R&D activities and the growth of the knowledge intensive producer services have been common feature in recent years. In this change of the structure of productive assets, the role of knowledge is well recognized as the most fundamental resources in recent years (OECD, 1996; WORLD BANK, 1998). The development of information and communication technology (ICT) and globalisation trend have promoted this shift toward knowledge-based economy

Do Empoyers Share the Costs and Benefits of General Training?

This paper presents evidence that during the first year or so of a worker\u27s tenure, wages rise more slowly than productivity net of training costs when training is predominantly general and that many employers are, in effect, induced to share the costs and benefits of general on-the-job training with their employees. This occurs for three reasons. First, sorting, high job search costs and the reputational damages that result from premature separations make a dismissed worker\u27s next best alternative decidedly unattractive and this causes workers to prefer front loaded compensation packages which reduce the likelihood of involuntary terminations. Second, since most young workers are liquidity constrained and cannot afford to self-finance general training, employers take advantage of their better access to credit and take over the financing of a portion of the costs of general on-the-job training. Finally, the minimum wage and union contracts prevent young workers from agreeing to the low starting wages that would be necessary if they were to self-finance general on-the-job training. Analysis of data comparing the growth of compensation to the growth of productivity net of training costs in jobs reported to involve skills that were useful at other firms found that during the first two years of tenure that net productivity grows on average 4 to 5 times faster than compensation. While the effective specificity of training that is reported to be useful elsewhere accounts for a portion of this difference, it does not account for all of it. Consequently, one or more of the forces listed above is probably contributing to the front-loading of compensation during the first year or so on a job

The effect of corporate taxes on investment and the capital stock

This paper analyses the effect of the corporate tax rate on the cost of capital and investment through two different channels. The first one concerns the fairly standard change in the user cost of capital, which determines a firm's optimal capital stock given that the firm is located in the Netherlands. The paper demonstrates that a reduction in the corporate tax rate reduces the user cost of capital because cost of capital is not fully deductible. The second channel deals with the direct effect of corporate taxation on profits. If capital is sufficiently mobile, the after tax profit margin cannot be affected by the corporate tax rate in equilibrium. Therefore, a rise in the corporate tax rate must be compensated by a compensating rise in the markup. We have assumed that only 35% actually be established. To get a feel for the quantitative effects of these two channels, they have been incorporated into the JADE model, the econometric macro model of CPB. The results suggest that only considering the user cost of capital approach ignores an important aspect of the impact of a change in corporate taxation

Entrepreneurship in Economic Development

What is the role of entrepreneurship in economic development? At a minimum the answer should be able to explain the role of entrepreneurs in the structural transformation of countries from low income, primary-sector based societies into high-income service and technology based societies. More broadly though, it should also be able to explain the role of entrepreneurs in the opposite pole of stagnating development (including conflict) and in high innovation-driven growth. Although economic development lacks a ?general theory? of entrepreneurship, which could encompass a variety of development experiences, much progress has been made in extending the understanding of entrepreneurship in the process of development. This paper surveys the progress with the purpose of distilling the outlines for a more general theory of entrepreneurship in economic development. Entrepreneurship in developing countries remains a relatively under-researched phenomenon, so by surveying the current state of research, and by discussing the role of entrepreneurship in dual economy models of structural transformation and growth, a secondary objective of this paper is to identify avenues for further research. Finally, the policy implications from the economic literature suggest that a case for government support exists, and that this should focus on the quantity, the quality, and the allocation of entrepreneurial ability. Many routinely adopted policies for entrepreneurship, such as provision of credit and education, are shown to have more subtle effects, not all of which are conducive to growth-enhancing entrepreneurship.entrepreneurship, economic development, small business

The Rise of European Unemployment: A Synopsis

Unemployment in the European Union has risen from a modest 2% in 1970 to 8.3% in 2002, a level not seen since the Great Depression. In this draft introduction for his new book, The Rise of European Unemployment: A Keynesian Approach, economist Engelbert Stockhammer argues that changes in the relationship between the financial sector and the real sector of the economy, a phenomenon he labels “financialization,” is at the root of the slowdown.

Risk and value in labour and capital markets: The UK corporate economy, 1980-2005.

The paper sets out a theoretical model linking stock market financial risk to labour market conditions, including labour intensity and the risk arising from the specification of labour contracts. A value added analysis is conducted combining national and firm level accounts data to examine the relationship between the share of value and the share of risk, contrasting manufacturing and service industries. In conjunction with a firm level analysis, empirical support for the model is established showing rational trade-offs between the risk and value appropriations of investors and employees and a less rational accumulation of structured debt finance as the UK economy has shifted from manufacturing to services in the last 30 years. The shift to services, flexibility and deregulation has tended to promote labour intensity, inflexibility of cost structures, and, as a consequence greater financial risk