How do firms adjust their wage bill in Belgium? A decomposition along the intensive and extensive margins

This paper decomposes wage bill changes at the firm level into components due to wage changes, and components due to net flows of employment. The analysis relies on an administrative employer-employee dataset of individual annual earnings matched with firms' annual accounts for Belgium over the period 1997-2001. Results point to asymmetric behaviour depending on economic conditions. On average, wage bill contractions result essentially from employment cuts in spite of wage increases. Wage growth of job stayers is moderated but still positive; and wages of entrants compared with those of incumbents are no lower. The labour force cuts are achieved through both reduced entries and increased exits. Higher exits may be due to more layoffs, especially in smaller firms, and wider use of early retirement, especially in manufacturing. In addition, the paper points up the role of overtime hours, temporary unemployment and interim workers in adapting to short-run fluctuations. JEL Classification: J30, J60employment flows, matched employer-employee data, Wages

How do firms adjust their wage bill in Belgium ? A decomposition along the intensive and extensive margins

This paper decomposes wage bill changes at the firm level into components due to wage changes, and components due to net flows of employment. The analysis relies on an administrative employer-employee dataset of individual annual earnings matched with firms' annual accounts for Belgium over the period 1997-2001. Results point to asymmetric behaviour depending on economic conditions. On average, wage bill contractions result essentially from employment cuts in spite of wage increases. Wage growth of job stayers is moderated but still positive; and wages of entrants compared with those of incumbents are no lower. The labour force cuts are achieved through both reduced entries and increased exits. Higher exits may be due to more layoffs, especially in smaller firms, and wider use of early retirement, especially in manufacturing. In addition, the paper points up the role of overtime hours, temporary unemployment and interim workers in adapting to short-run fluctuations.wages, employment flows, matched employer-employee data

Heteroskedasticity-Consistent Estimation of the Variance-Covariance Matrix for the Almost Ideal Demand System

In this note I demonstrate the previously overlooked fact that if the AIDS aggregate demand model is constructed as the aggregation of individual consumer demands, then the error structure for any individual equation is necessarily heteroskedastic unless the distribution of income is constant across aggregates. Maximum likelihood estimation which ignores this heteroskedasticity yields inconsistent estimates of the variance-covariance matrix and renders likelihood ratio tests of the restrictions of consumer demand theory inappropriate. A heteroskedasticity-consistent estimator of the variance-covariance matrix is proposed by adopting the technique of White (1980) to the case at hand.

Comparative advantage, multi-product firms and trade liberalisation : An empirical test

This paper investigates how economies of scope in multi-product firms interact with comparative advantage in determining the effect of trade liberalisation on resource reallocation, using Belgian manufacturing firm- and firm-product-level data over the period 1997-2007. We first provide evidence on industry integration induced by multi-product firms producing simultaneously in multiple industries and on the extent to which industry integration occurs between industries that have different degrees of comparative advantage. We then examine the impact of opening up trade with low-wage countries on both inter- and intra-industry resource reallocation, taking into account heterogeneity in the integration rate across sectors and industries. Our results indicate that, within more closely integrated sectors, trade liberalisation with low-wage countries leads to less reallocation from low-skill-intensity (comparative-disadvantage) industries to high-skill-intensity (comparative-advantage) industries, both in terms of employment and output. We also find that more integrated industries experience less skill upgrading after trade liberalisation with low-wage countries. Furthermore, we find that within sectors with a low integration rate, trade liberalisation with low-wage countries induces relatively more aggregate TFP and average firm output growth in comparative-advantage industries than in comparative-disadvantage industries, in line with the prediction of Bernard, Redding and Schott (2007), while the opposite is true in highly integrated sectors. Decomposition of the industry-level aggregate TFP changes reveals that the result is mainly driven by reallocation between incumbent firms within industries. Overall, the results are highly consistent with the predictions of the Song and Zhu (2010) model.trade liberalisation, industry integration, comparative advantage, firm heterogeneity, microeconomic panel data, Total Factor Productivity

Rigid labour compensation and flexible employment? Firm-level evidence with regard to productivity for Belgium

Using firm-level data for Belgium over the period 1997-2005, we evaluate the elasticity of firms' labour and real average labour compensation to microeconomic total factor productivity (TFP). Our results may be summarised as follows. First, we find that the elasticity of average labour compensation to firm-level TFP is very low contrary to that of labour, consistent with real wage rigidity. Second, while the elasticity of average labour compensation to idiosyncratic firm- level TFP is close to zero, the elasticity with respect to aggregate sector-level TFP is high. We argue that average labour compensation adjustment mainly occur at the sector level through sectoral collective bargaining, which leaves little room for firm-level adjustment to firm-specific shocks. Third, we report evidence of a positive relationship between hours and idiosyncratic TFP, as well as aggregate TFP within the year. JEL Classification: J30, J60Employment, hours, labour compensation, total factor productivity

Firms' investment decisions in response to demand and price uncertainty

We estimate the effect of demand and price uncertainty on firms' investment decisions from a panel of manufacturing firms. Uncertainty measures are derived from firms' subjective qualitative expectations. They are close to their theoretical counterparts, the variances of future demand and price shocks. We find that demand uncertainty depresses planned and realized investment, while price uncertainty is insignificant. This is consistent with the behavior of monopolistic firms with irreversible capital (Caballero, 1991). Further, firms revise their investment plans very little. They may do so in response to new information on sales growth, but not as a result of reduced uncertainty.investment, uncertainty, real options, survey data, panel data

The Canada-U.S. Auto Pact of 1965: An Experiment in Selective Trade Liberalization

In this paper we analyse the Canada-U.S. Auto Pact, a selective trade liberalization agreement which created a duty-free North American market for the major U.S. multinational automobile producers, but continued to protect them from offshore producers. The new international trade/I.O. literature predicts that, given the probable unexploited economics of scale and specialization in the tariff-protected small Canadian economy prior to 1965, rationalization leading to large efficiency gains in Canadian production vis a vis U.S. production would occur in a free trade environment. We estimate that the Auto Pact did not induce a substantial improvement in Canadian relative production efficiency. The missing ingredient seems to have been the competition-increasing effects of free trade in an oligopolistic setting that is emphasized by the new trade/I.O. literature. The Auto Pact did not increase the number of rivals in the oligopolistic Canadian industry since the major players in the industry had production facilities on both sides of the Canada-U.S. border before 1965, and no significant new entry into Canada occurred. In the 1962-64 period, Canadian automotive production was 27% less efficient than U.S. production. By 1970-72 this deficiency had been reduced to 19%, but was not further reduced by the end of the 1970's. Of the 8 percentage points reduction in the Canadian disadvantage, we attribute only 3 percentage points to the rationalization process induced specifically by the Auto Pact.