ERC FIRMNET

I have been awarded an ERC Advanced Grant in 2017 to conduct research on firms and their networks.

There is mounting evidence that firms are becoming more fragmented; production is less often made “in-house”. Firms buy inputs from abroad. Tasks are often split in parts. Some are off-shored, others are subcontracted. Hence, firms also buy services from other, local or international, firms. They also supply inputs to other firms. Technical change, the internet, and globalization, all facilitate the division of labor between firms in the global economy. In order to study firms’ structure and behavior in this changing world, one must examine the relations these firms have built with their direct environment and how such relations shape firms’ answers to shocks. The project aims to construct a networks view of the firm, addressing empirical, theoretical, and econometric questions.

The research agenda consists of four closely related Work Packages (WP). The first two are empirical and focus on how social networks (WP1, on Sweden) and business networks (WP2, on French exporters and their international clients) help firms to be resilient when facing shocks. Fragmented and specialized firms create a business network of customers and suppliers to secure provision of different tasks. Moreover, firms may rely on their employees’ social networks (family ties, boardroom relations, …) to find new suppliers of goods and services, hire workers or look for administrative or financial support during downturns. Firms' resilience is essentially measured using administrative data on its economic outcomes such as production or value-added and its employees' labor market outcomes such as employment, wages, or the structure of their occupations. The third, WP3, adds an optimizing dimension together with a system perspective to the questions raised in WP2. It examines a network theory of production and firm-to-firm trade within a General Equilibrium framework where buyers meet sellers to fulfill production tasks. The model generates both micro- and macro-economic predictions. Finally, inspired by problems faced in WP1 and WP2, WP4 provides econometric tools to understand many-to-one matches (typically n workers and their employing firm or an exporter and its n international buyers) in the presence of networks that connect workers or firms. These tools will be applied to questions raised in WP1 and WP2, using the same data sources.

The complete research proposal can be found here.

Working Papers

WP1: Social Networks (Swedish data)

"Social Connections and the Sorting of Workers to Firms" (2020), with O. Skans, L. Hensvik and M. Eliason. Submitted.

The paper was presented on the following occasions:

  • Invited Lecture (Kramarz), INRA conference, Rennes (May 16, 2019)

  • Bank of Italy (Kramarz), Rome (June 14, 2019)

  • AKM conference (Kramarz), New York (October 12, 2019)

"Connecting the Young: High School Graduates’ Matching to First Jobs in Booms and Great Recessions" (May 2020), by L. Hensvik, D. Müller and O. Skans. Revise and Resubmit, 3rd round, Economic Journal.


WP2: French Exporters and their Business Networks

Given the granularity of international trade networks, the present analysis aims to provide empirical evidence on how idiosyncratic, firm-level shocks that affect one side of the trading relation are transmitted to sellers in France, for whom we can measure outcomes using administrative, linked employer-employee data. In particular, we hope to answer the following questions: What happens to French exporters when a (large) buyer disappears? How does the firm redeploy its sales in the face of sudden micro-economic demand shocks? How are workers affected in their jobs or wages? How does the structure of occupations and tasks across and within firms change as a result of global trade? The yet-to-come results will constitute the first direct measures of the international transmission of shocks on labor market outcomes.

Advancement of the project:

    • We have built an enriched data base on suppliers (French firms) and buyers (European firms), including data on suppliers' balance sheets, employment and firm-to-firm exports. We also developed a procedure to identify likely buyer deaths from French Customs data.

    • We estimate the effects of "buyer death shocks" on French exporters in an event study design. Our first estimates show a significant and permanent decrease in export sales of about 20 percent within 5 years following such a death. However, this result also masks large heterogeneity across firms, which we are currently analyzing. We will then move towards how the shocks translate into job losses or wage movements.

    • We will also try alternative identification strategies, in particular by estimating survival probabilities of foreign buyers in the sample. These probabilities can be used as propensity scores to implement a matching estimator.


WP3: Theory: A General Equilibrium Model of Firm-to-Firm Trade

Pure competition setup:

"Firm-to-Firm Trade: Imports, Exports and the Labor Market", with J. Eaton and S. Kortum. Draft available soon.

The paper was presented on the following occasions:

  • Conference (Kramarz): University of Kent, Canterbury (November 22, 2018)

  • Seminar (Kortum): “Firm-to-Firm Trade," European University Institute, Florence (December 13, 2018)

  • Graham Lecture (Kortum): “In Search of Trade Frictions,” Princeton (April 18, 2019)

  • Keynote (Kramarz): Conference of Baltic economists, Riga (June 8, 2019)

  • Keynote (Kortum): “In Search of Trade Frictions,” China Meetings of the Econometric Society (CMES2019), Guanzhou (June 19, 2019)

  • Seminar (Kortum): “Firm-to-Firm Trade," University of Tokyo (June 26, 2019)

  • Keynote (Kortum): “In Search of Trade Frictions,” Asia Pacific Trade Seminars (APTS2019), Tokyo (June 29, 2019).

Bertrand competition (work in progress) :

We extend the purely competitive framework (see above) to a setting with Bertrand pricing and rent-sharing between workers and firms. This model is able to explain wage differentials between similar workers employed in different firms, while also matching the same aggregate trade features as the pure competition version.


WP4: Economics and Econometrics of Many-to-One Matches

Many-to-one matching between workers and firms:

The goal is to build a game-theoretical model of many-to-one matching and to develop a corresponding estimation strategy.

Skills "bundling" and the uberization of our economies (joint with Philippe Choné):

We try to understand many-one-matching through the prism of the supply of and demand for workers' skills. Skills are multidimensional and can only be sold as a "bundle". In the corresponding labor market equilibrium, workers with similar comparative advantage in the k potential skills match to firms with compatible technological preferences in these skills. In today’s world, some of the previously bundled skills are faced with the opening of a market for that exact skill, something we label as “unbundling”. This can be due to technological shocks transforming a market (such as the advent of Uber), legislative changes or the opening to international trade. We characterize how the equilibrium changes, which firms and which types of workers benefit from unbundling and, by contrast, which firms and workers are negatively affected. Ultimately, we want to confront this theory with Swedish data on cognitive and non-cognitive skills.

Collaborators

Research is carried out jointly with researchers at CREST, Uppsala University, Yale University and Penn State University.

Current and previous research assistants: Lorenzo Kaaks, Sophie Nottmeyer, Etienne Guigue, Maxime Cugnon

Activities

Firms and Markets Seminar at CREST