From Labor to Intermediates: Firm Growth, Input Substitution, and Monopsony
Matthias Mertens, Benjamin Schoefer
IWH Discussion Papers,
Nr. 24,
2024
Abstract
We document and dissect a new stylized fact about firm growth: the shift from labor to intermediate inputs. This shift occurs in input quantities, cost and output shares, and output elasticities. We establish this fact using German firm-level data and replicate it in administrative firm data from 11 additional countries. We also document these patterns in micro-aggregated industry data for 20 European countries (and, with respect to industry cost shares, for the US). We rationalize this novel regularity within a parsimonious model featuring (i) an elasticity of substitution between intermediates and labor that exceeds unity, and (ii) an increasing shadow price of labor relative to intermediates, due to monopsony power over labor or labor adjustment costs. The shift from labor to intermediates accounts for one half to one third of the decline in the labor share in growing firms (the remainder is due to wage markdowns and markups) and rationalizes most of the labor share decline in growing industries.
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From Labor to Intermediates: Firm Growth, Input Substitution, and Monopsony
Matthias Mertens, Benjamin Schoefer
IWH-CompNet Discussion Papers,
Nr. 1,
2024
Abstract
We document and dissect a new stylized fact about firm growth: the shift from labor to intermediate inputs. This shift occurs in input quantities, cost and output shares, and output elasticities. We establish this fact using German firm-level data and replicate it in administrative firm data from 11 additional countries. We also document these patterns in micro-aggregated industry data for 20 European countries (and, with respect to industry cost shares, for the US). We rationalize this novel regularity within a parsimonious model featuring (i) an elasticity of substitution between intermediates and labor that exceeds unity, and (ii) an increasing shadow price of labor relative to intermediates, due to monopsony power over labor or labor adjustment costs. The shift from labor to intermediates accounts for one half to one third of the decline in the labor share in growing firms (the remainder is due to wage markdowns and markups) and rationalizes most of the labor share decline in growing industries.
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Department Profiles
Research Profiles of the IWH Departments All doctoral students are allocated to one of the four research departments (Financial Markets – Laws, Regulations and Factor Markets –…
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Department Profiles
Research Profiles of the IWH Departments All doctoral students are allocated to one of the four research departments (Financial Markets – Laws, Regulations and Factor Markets –…
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Carbon Transition Risk and Corporate Loan Securitization
Isabella Müller, Huyen Nguyen, Trang Nguyen
IWH Discussion Papers,
Nr. 22,
2022
Abstract
We examine how banks manage carbon transition risk by selling loans given to polluting borrowers to less regulated shadow banks in securitization markets. Exploiting the election of Donald Trump as an exogenous shock that reduces carbon risk, we find that banks’ securitization decisions are sensitive to borrowers’ carbon footprints. Banks are more likely to securitize brown loans when carbon risk is high but swiftly change to keep these loans on their balance sheets when carbon risk is reduced after Trump’s election. Importantly, securitization enables banks to offer lower interest rates to polluting borrowers but does not affect the supply of green loans. Our findings are more pronounced among domestic banks and banks that do not display green lending preferences. We discuss how securitization can weaken the effectiveness of bank climate policies through reducing banks’ incentives to price carbon risk.
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The Macroeconomics of Testing and Quarantining
Martin S. Eichenbaum, Sergio Rebelo, Mathias Trabandt
Journal of Economic Dynamics and Control,
May
2022
Abstract
We develop a SIR-based macroeconomic model to study the impact of testing/ quarantining and social distancing/mask use on health and economic outcomes. These policies can dramatically reduce the costs of an epidemic. Absent testing/quarantining, the main effect of social distancing and mask use on health outcomes is to delay, rather than reduce, epidemic-related deaths. Social distancing and mask use reduce the severity of the epidemic-related recession but prolong its duration. There is an important synergy between social distancing and mask use and testing/quarantining. Social distancing and mask use buy time for testing and quarantining to come to the rescue. The benefits of testing/quarantining are even larger when people can get reinfected, either because the virus mutates or immunity is temporary.
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Inequality in Life and Death
Martin S. Eichenbaum, Sergio Rebelo, Mathias Trabandt
IMF Economic Review,
March
2022
Abstract
We argue that the COVID epidemic disproportionately affected the economic well-being and health of poor people. To disentangle the forces that generated this outcome, we construct a model that is consistent with the heterogeneous impact of the COVID recession on low- and high-income people. According to our model, two-thirds of the inequality in COVID deaths reflect preexisting inequality in comorbidity rates and access to quality health care. The remaining third stems from the fact that low-income people work in occupations where the risk of infection is high. Our model also implies that the rise in income inequality generated by the COVID epidemic reflects the nature of the goods that low-income people produce. Finally, we assess the health-income trade-offs associated with fiscal transfers to the poor and mandatory containment policies.
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Inequality in Life and Death
Martin S. Eichenbaum, Sergio Rebelo, Mathias Trabandt
Abstract
We argue that the Covid epidemic disproportionately affected the economic well-being and health of poor people. To disentangle the forces that generated this outcome, we construct a model that is consistent with the heterogeneous impact of the Covid recession on low- and high-income people. According to our model, two thirds of the inequality in Covid deaths reflect pre-existing inequality in comorbidity rates and access to quality health care. The remaining third, stems from the fact that low-income people work in occupations where the risk of infection is high. Our model also implies that the rise in income inequality generated by the Covid epidemic reflects the nature of the goods that low-income people produce. Finally, we assess the health-income trade-offs associated with fiscal transfers to the poor and mandatory containment policies.
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Lender-specific Mortgage Supply Shocks and Macroeconomic Performance in the United States
Franziska Bremus, Thomas Krause, Felix Noth
IWH Discussion Papers,
Nr. 3,
2021
Abstract
This paper provides evidence for the propagation of idiosyncratic mortgage supply shocks to the macroeconomy. Based on micro-level data from the Home Mortgage Disclosure Act for the 1990-2016 period, our results suggest that lender-specific mortgage supply shocks affect aggregate mortgage, house price, and employment dynamics at the regional level. The larger the idiosyncratic shocks to newly issued mortgages, the stronger are mortgage, house price, and employment growth. While shocks at the level of shadow banks significantly affect mortgage and house price dynamics, too, they do not matter much for employment.
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Disentangling Covid-19, Economic Mobility, and Containment Policy Shocks
Annika Camehl, Malte Rieth
IWH Discussion Papers,
Nr. 2,
2021
Abstract
We study the dynamic impact of Covid-19, economic mobility, and containment policy shocks. We use Bayesian panel structural vector autoregressions with daily data for 44 countries, identified through sign and zero restrictions. Incidence and mobility shocks raise cases and deaths significantly for two months. Restrictive policy shocks lower mobility immediately, cases after one week, and deaths after three weeks. Non-pharmaceutical interventions explain half of the variation in mobility, cases, and deaths worldwide. These flattened the pandemic curve, while deepening the global mobility recession. The policy tradeoff is 1 p.p. less mobility per day for 9% fewer deaths after two months.
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