Labor Market Power and the Distorting Effects of International Trade
Matthias Mertens
International Journal of Industrial Organization,
January
2020
Abstract
This article examines how final product trade with China shapes and interacts with labor market imperfections that create market power in labor markets and prevent an efficient market outcome. I develop a framework for measuring such labor market power distortions in monetary terms and document large degrees of these distortions in Germany's manufacturing sector. Import competition only exerts labor market disciplining effects if firms, rather than employees, possess labor market power. Otherwise, increasing export demand and import competition both fortify existing distortions, which decreases labor market efficiency. This widens the gap between potential and realized output and thus diminishes classical gains from trade.
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Total Factor Productivity and the Terms of Trade
Jan Teresinski
IWH-CompNet Discussion Papers,
No. 6,
2019
Abstract
In this paper we analyse how the terms of trade (TOT) – the ratio of export prices to import prices – affect total factor productivity (TFP). We provide empirical macroeconomic evidence for the European Union countries based on the times series SVAR analysis and microeconomic evidence based on industry level data from the Competitiveness Research Network (CompNet) database which shows that the terms of trade improvements are associated with a slowdown in the total factor productivity growth. Next, we build a theoretical model which combines open economy framework with the endogenous growth theory. In the model the terms of trade improvements increase demand for labour employed in exportable goods production at the expense of technology production (research and development – R&D) which leads to a shift of resources from knowledge development towards physical exportable goods. This reallocation has a negative impact on the TFP growth. Under a plausible calibration the model is able to replicate the observed empirical pattern.
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28.09.2017 • 35/2017
Joint Economic Forecast—Autumn 2017: Upturn Remains Robust—Amid Mounting Tensions
The German economic upturn has gained both in terms of strength and breadth. In addition to consumer spending, external trade and investments are now also contributing to economic expansion. These are the conclusions drawn by the economic research institutes in their autumn report for the German federal government. Whereas the very high economic momentum in the first half of the current year will slow slightly, expansion of economic output this year and next will exceed production capacity growth. As a result, overall capacity utilization will increase, with economic output exceeding potential output. Gross Domestic Product is likely to grow by 1.9 percent this year and by 2 percent in 2018 (calendar-adjusted: 2.2 and 2.1 percent, respectively).
Oliver Holtemöller
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Enforceability of Noncompetition Agreements and Firm Innovation: Does State Regulation Matter?
Desheng Yin, Iftekhar Hasan, Nada Kobeissi, Haizhi Wang
Innovation: Organization & Management,
No. 2,
2017
Abstract
In this study, we examine how noncompetition agreements and the mobility of human capital – a core asset of any firm – affect innovations of publicly traded firms in the United States. We find that firms in states with stricter noncompetition enforcement have fewer patent applications. We also examine patent forward citations and find that tougher enforcement of such contracts is associated with less innovative patents. Notably, we find that stronger enforcement of noncompetition agreements impedes innovation for firms facing intense industry labor mobility. High-powered, equity-based compensation positively moderates the relationship between noncompetition enforcement and innovation, but only for the quality of innovation.
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Financial Transaction Taxes: Announcement Effects, Short-run Effects, and Long-run Effects
Sebastian Eichfelder, Mona Noack, Felix Noth
Abstract
We analyze the impact of the French 2012 financial transaction tax (FTT) on trading volumes, stock prices, liquidity, and volatility. We extend the empirical research by identifying FTT announcement and short-run treatment effects, which can distort difference-in-differences estimates. In addition, we consider long-run volatility measures that better fit the French FTT’s legislative design. While we find strong evidence of a positive FTT announcement effect on trading volumes, there is almost no statistically significant evidence of a long-run treatment effect. Thus, evidence of a strong reduction of trading volumes resulting from the French FTT might be driven by announcement effects and short-term treatment effects. We find evidence of an increase of intraday volatilities in the announcement period and a significant reduction of weekly and monthly volatilities in the treatment period. Our findings support theoretical considerations suggesting a stabilizing impact of FTTs on financial markets.
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Brexit (Probability) and Effects on Financial Market Stability
Thomas Krause, Felix Noth, Lena Tonzer
IWH Online,
No. 5,
2016
Abstract
On 23 June 2016, there will be a referendum in the United Kingdom (UK) on the stay of the country in the European Union (EU). Based on recent poll data, the share of supporters and opponents of an exit varies around 50%. Opponents of the UK breaking up with Brussels („Brexit“) refer to high costs in terms of stagnating economic growth if the UK leaves the EU. The risk of reduced trade, declining foreign direct investment, and a lower degree of financial market integration is high following an exit of the “single market”.
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Structural Reforms in Banking: The Role of Trading
Jan Pieter Krahnen, Felix Noth, Ulrich Schüwer
Abstract
In the wake of the recent financial crisis, significant regulatory actions have been taken aimed at limiting risks emanating from trading in bank business models. Prominent reform proposals are the Volcker Rule in the U.S., the Vickers Report in the UK, and, based on the Liikanen proposal, the Barnier proposal in the EU. A major element of these reforms is to separate “classical” commercial banking activities from securities trading activities, notably from proprietary trading. While the reforms are at different stages of implementation, there is a strong ongoing discussion on what possible economic consequences are to be expected. The goal of this paper is to look at the alternative approaches of these reform proposals and to assess their likely consequences for bank business models, risk-taking and financial stability. Our conclusions can be summarized as follows: First, the focus on a prohibition of only proprietary trading, as envisaged in the current EU proposal, is inadequate. It does not necessarily reduce risk-taking and it likely crowds out desired trading activities, thereby negatively affecting financial stability. Second, there is potentially a better solution to limit excessive trading risk at banks in terms of potential welfare consequences: Trading separation into legally distinct or ring-fenced entities within the existing banking organizations. This kind of separation limits cross-subsidies between banking and proprietary trading and diminishes contagion risk, while still allowing for synergies across banking, non-proprietary trading and proprietary trading.
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