GCEE Working Paper 08/2021
How do recessions affect labour reallocation dynamics? Using data for Germany we document that gross job reallocation has been slightly countercyclical in the past and has increased slightly in previous recessions. This mild countercyclicality results from procyclical job creation rates and slightly more countercyclical job destruction rates. The recession caused by the COVID-19 pandemic has been atypical in this regard. While the reallocation of workers within sectors declined due to lower hiring and separation rates, the reallocation of workers between sectors surprisingly increased. Finally, we document that short time work likely played a substantial role in reducing separation rates, thus dampening the reallocation process during the COVID-19 recession in Germany.
GCEE Working Paper 11/2020
This article explores the design of Carbon Adjustment Mechanisms based on an analysis of historical data, the existing literature as well as theoretical considerations. In the empirical analysis we quantify territorial emissions as compared to the CO2 footprints for countries within the EU-ETS area and globally, we show which (mostly upstream) industries account for the majority of emissions, and identify how their emissions are imported embedded in final or intermediate products from more downstream industries. In an analysis based on gravity equations, we find evidence for carbon leakage in some emission-intensive industries, but only small overall effects. Based on our own evidence and the current literature, we conclude that - if a Carbon Adjustment Mechanism is to be established - focusing on emissions intensive industries could balance excessive bureaucratic burden and carbon leakage mitigation. To be effective, such a system should also extend to embedded emissions in downstream industries to avoid a shift of imports down the value chain. Concerns with regard to international trade relations could be addressed by not implementing Carbon Adjustment Mechanisms unilaterally, but rather using them as the basis for a cooperative approach to climate protection jointly with the most important trading partners.
While the significant decline in US firm formation rates over the past 30 years has raised concern about the health of the US economy, its causes are not yet fully understood. I argue that a significant part of this decline can be explained as an efficient response to size biased technological change. I document an increase in the size of large firms in the US since the mid-1980s contemporaneous to the decline in firm formation rates and show that large firms expanded by sharply increasing the number of establishments they operate. These changes in the organizational structure of large firms are consistent with improvements in information and communications technology which mainly benefitted large firms by reducing monitoring, coordination and distribution costs. I construct a simple industry dynamics model in which an expansion by large firms due to reductions in the cost of managing many establishments crowds out smaller firms that are responsible for most of firm turnover. While generating a decrease in startup rates and an increase in the size of large firms through an increase in the number of establishments they operate, welfare improves. These results counter the popular opinion that declining firm formation rates are necessarily a bad sign.
While it is long known that there is a significant drop in the number of new firms during recessions, there is also a longstanding debate over whether these are of higher or lower quality. Recent research has documented for the US that firms started in recessions have worse long run growth prospects i.e. are of lower quality. In this research project we investigate the sources of the quality decline of new firms in recessions. Using full population data from Sweden, we document that during recessions there is a shift towards entrepreneurs of lower quality i.e. a higher share of entrepreneurs starting firms from unemployment and among those who start firms out of a job, a higher share of entrepreneurs with low wages in prior employment. We thus argue that variation in the quality of startups over the cycle is mostly supply driven in contrast to the suggestions of the prior literature, which has important implications for public policy.
When setting optimal prices, firms are often uncertain about the actual demand they face. Thus in addition to solving the classic price-quantity tradeoff, firms also have to take into account how price setting affects the speed at which they learn about demand. While high prices increase revenue per product they also deter customers from buying, and thus reduce the speed at which firms can learn about demand through observed sales volumes. In this paper I extend the model of Mason and Valimaki (2011) from firms who only have a single unit in their inventory to multiunit firms, which gives rise to a much richer learning process. I prove several intuitive characteristics of the optimal pricing policy and show that higher uncertainty increases prices as firms don't want to set a suboptimal price and rather wait until they have better demand information in order to set the correct price.