Laws, Regulations and Factor Markets
The idea in forming the new department “Laws, Regulations and Factor Markets” is the observation that the regulation of financial and labour markets are traditionally analysed separately. The new department aims to overcome this divide from the perspective of real sector development. It will achieve this objective by conducting joint research into aspects of the framework conditions for financial and labour markets that are relevant to growth and structure. The unique attribute of the new department is the analysis of interdependency between national and supranational regulation within the field of financial and labour markets on the one hand, and real sector development on the other.
Paying Outsourced Labor: Direct Evidence from Linked Temp Agency-Worker-Client Data
in: Review of Economics and Statistics, forthcoming
We estimate how much firms differentiate pay premia between regular and outsourced workers in temp agency work arrangements. We leverage unique Argentinian administrative data that feature links between user firms (the workplaces where temp workers perform their labor) and temp agencies (their formal employers). We estimate that a high-wage user firm that pays a regular worker a 10% premium pays a temp worker on average only a 4.9% premium, compared to what these workers would earn in a low-wage user firm in their respective work arrangements—the midpoint between the benchmarks for insiders (one) and the competitive spot-labor market (zero).
Supranational Rules, National Discretion: Increasing versus Inflating Regulatory Bank Capital?
in: Journal of Financial and Quantitative Analysis, forthcoming
We study how banks use “regulatory adjustments” to inflate their regulatory capital ratios and whether this depends on forbearance on the part of national authorities. Using the 2011 EBA capital exercise as a quasi-natural experiment, we find that banks substantially inflated their levels of regulatory capital via a reduction in regulatory adjustments — without a commensurate increase in book equity and without a reduction in bank risk. We document substantial heterogeneity in regulatory capital inflation across countries, suggesting that national authorities forbear their domestic banks to meet supranational requirements, with a focus on short-term economic considerations.
Marginal Jobs and Job Surplus: A Test of the Efficiency of Separations
in: Review of Economic Studies, forthcoming
We present a test of Coasean theories of efficient separations. We study a cohort of jobs from the introduction through the repeal of a large age- and region-specific unemployment benefit extension in Austria. In the treatment group, 18.5% fewer jobs survive the program period. According to the Coasean view, the destroyed marginal jobs had low joint surplus. Hence, after the repeal, the treatment survivors should be more resilient than the ineligible control group survivors. Strikingly, the two groups instead exhibit identical post-repeal separation behavior. We provide, and find suggestive evidence consistent with, an alternative model in which wage rigidity drives the inefficient separation dynamics.
A Congestion Theory of Unemployment Fluctuations
in: American Economic Journal: Macroeconomics, forthcoming
We propose a theory of unemployment fluctuations in which newhires and incumbentworkers are imperfect substitutes. Hence, attempts to hire away the unemployed during recessions diminish the marginal product of new hires, discouraging job creation. This single feature achieves a ten-fold increase in the volatility of hiring in an otherwise standard search model, produces a realistic Beveridge curve despite countercyclical separations, and explains 30–40% of U.S. unemployment fluctuations. Additionally, it explains the excess procyclicality of new hires’ wages, the cyclical labor wedge, countercyclical earnings losses from job displacement, and the limited steady-state effects of unemployment insurance.
Productivity, Place, and Plants
in: Review of Economics and Statistics, forthcoming
Why do cities differ so much in productivity? A long literature has sought out systematic sources, such as inherent productivity advantages, market access, agglomeration forces, or sorting. We document that up to three quarters of the measured regional productivity dispersion is spurious, reflecting the “luck of the draw” of finite counts of idiosyncratically heterogeneous plants that happen to operate in a given location. The patterns are even more pronounced for new plants, hold for alternative productivity measures, and broadly extend to European countries. This large role for individual plants suggests a smaller role for places in driving regional differences.
Going Public and the Internal Organization of the Firm
in: SSRN Working Paper, May 2022
We examine how firms adapt their organization when they go public. To conform with the requirements of public capital markets, we expect IPO firms to become more organized, making the firm more accountable and its human capital more easily replaceable. We find that IPO firms transform into a more hierarchical organization with smaller departments. Managerial oversight increases. Organizational functions dedicated to accounting, finance, information and communication, and human resources become much more prominent. Employee turnover is sizeable and directly related to changes in hierarchical layers. New hires are better educated, but younger and less experienced than incumbents, which reflects the staffing needs of a more hierarchical organization. Wage inequality increases as firms become more hierarchical. Overall, going public is associated with a comprehensive transformation of the firm's organization which becomes geared towards efficiently operating a public firm.
Banking Deregulation and Consumption of Home Durables
in: IWH Discussion Papers, No. 4, 2022
We exploit the spatial and temporal variation of the staggered introduction of interstate banking deregulation across the U.S. to study the relationship between credit constraints and consumption of durables. Using the American Housing Survey from 1981 to 1989, we link the timing of these reforms with evidence of a credit expansion and household responses on many margins. We find evidence that low-income households are more likely to purchase new appliances after the deregulation. These durable goods allowed households to consume less natural gas and spend less time in domestic activities after the reforms.
The Adverse Effect of Contingent Convertible Bonds on Bank Stability
in: IWH Discussion Papers, No. 1, 2022
This paper examines the impact of issuing contingent convertible (CoCo) bonds on bank risk. I apply a matching-based difference-in-differences approach to banklevel data for 246 publicly traded European banks and 61 CoCo issues from 2008−2018. My estimation results reveal that issuing CoCo bonds that meet the criteria for additional tier 1 (AT1) capital results in significantly higher z-scores one to three years after the issuance. Rather than having a net negative impact, issuing CoCos seems to impede a positive time trend towards greater bank stability. This study adds to the empirical literature on the risk-effect of contingent convertibles by identifying the causal effect of AT1 CoCo bonds on reported risk changes over a three-year post-treatment horizon based on a comprehensive sample of European banks. The results confirm theoretical predictions that currently outstanding CoCo bonds create incentives for excessive risk-taking.
Corporate Loan Spreads and Economic Activity
in: SSRN Working Paper, 2021
We use secondary corporate loan-market prices to construct a novel loan-market-based credit spread. This measure has considerable predictive power for economic activity across macroeconomic outcomes in both the U.S. and Europe and captures unique information not contained in public market credit spreads. Loan-market borrowers are compositionally different and particularly sensitive to supply-side frictions as well as financial frictions that emanate from their own balance sheets. This evidence highlights the joint role of financial intermediary and borrower balance-sheet frictions in understanding macroeconomic developments and enriches our understanding of which type of financial frictions matter for the economy.
Private Equity in the Hospital Industry
in: ECGI Working Paper, No. 787, 2021
We examine employment and patient outcomes at hospitals acquired by private equity (PE) firms and PE-backed hospitals. While employment declines at PE-acquired hospitals, core medical workers (physicians, nurses, and pharmacists) increase significantly. The proportion of wages paid to core workers increases at PE-acquired hospitals whereas the proportion paid to administrative employees declines. These results are most pronounced for deals where the acquirers are publicly traded PE-backed hospitals. Non-PE-backed acquirers also cut employment but do not increase core workers or reduce administrative expenditures. Finally, PE-backed acquirers are not associated with worse patient satisfaction or mortality rates compared to their non-PE-backed counterparts.