The Economic Gap between East and West Germany
The group uses innovative methods to investigate why the economy in eastern Germany is still lagging behind that in western Germany – and what role the privatisation process 30 years ago played in this.
The main project of the group investigates the privatisation of former GDR businesses by the Treuhandanstalt. To what extent did the qualifications of the selected managers or their networking with other decision-makers play a role? How would eastern German firms be performing today if exclusively the most talented entrepreneurs had been put in charge? The group uses data at a micro level (firms, managers, patents, ideas) in order to answer macroeconomic questions with the help of a model estimation. The second research project analyses why highly innovative firms are established less frequently in eastern than in western Germany, and also examines the role of migrants in economic growth and knowledge creation in Germany. Finally, the third research project looks for reasons for the slowing productivity growth in Europe using CompNet data.
Research ClusterMacroeconomic Dynamics and Stability
Uncovered Workers in Plants Covered by Collective Bargaining: Who Are They and How Do They Fare?
in: British Journal of Industrial Relations, forthcoming
Abstract In Germany, employers used to pay union members and non-members in a plant the same union wage in order to prevent workers from joining unions. Using recent administrative data, we investigate which workers in firms covered by collective bargaining agreements still individually benefit from these union agreements, which workers are not covered anymore and what this means for their wages. We show that about 9 per cent of workers in plants with collective agreements do not enjoy individual coverage (and thus the union wage) anymore. Econometric analyses with unconditional quantile regressions and firm-fixed-effects estimations demonstrate that not being individually covered by a collective agreement has serious wage implications for most workers. Low-wage non-union workers and those at low hierarchy levels particularly suffer since employers abstain from extending union wages to them in order to pay lower wages. This jeopardizes unions' goal of protecting all disadvantaged workers.
Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory
in: American Economic Journal: Macroeconomics, No. 1, 2021
In this paper, we review the literature on declining business dynamism and its implications in the United States and propose a unifying theory to analyze the symptoms and the potential causes of this decline. We first highlight 10 pronounced stylized facts related to declining business dynamism documented in the literature and discuss some of the existing attempts to explain them. We then describe a theoretical framework of endogenous markups, innovation, and competition that can potentially speak to all of these facts jointly. We next explore some theoretical predictions of this framework, which are shaped by two interacting forces: a composition effect that determines the market concentration and an incentive effect that determines how firms respond to a given concentration in the economy. The results highlight that a decline in knowledge diffusion between frontier and laggard firms could be a significant driver of empirical trends observed in the data. This study emphasizes the potential of growth theory for the analysis of factors behind declining business dynamism and the need for further investigation in this direction.
Lack of Selection and Limits to Delegation: Firm Dynamics in Developing Countries
in: American Economic Review, No. 1, 2021
Delegating managerial tasks is essential for firm growth. Most firms in developing countries, however, do not hire outside managers but instead rely on family members. In this paper, we ask if this lack of managerial delegation can explain why firms in poor countries are small and whether it has important aggregate consequences. We construct a model of firm growth where entrepreneurs have a fixed time endowment to run their daily operations. As firms grow large, the need to hire outside managers increases. Firms’ willingness to expand therefore depends on the ease with which delegation can take place. We calibrate the model to plant-level data from the U.S. and India. We identify the key parameters of our theory by targeting the experimental evidence on the effect of managerial practices on firm performance from Bloom et al. (2013). We find that inefficiencies in the delegation environment account for 11% of the income per capita difference between the U.S. and India. They also contribute to the small size of Indian producers, but would cause substantially more harm for U.S. firms. The reason is that U.S. firms are larger on average and managerial delegation is especially valuable for large firms, thus making delegation efficiency and other factors affecting firm growth complements.
Does Low-pay Persist across Different Regimes? Evidence from the German Unification
in: Economics of Transition and Institutional Change, No. 3, 2020
Using German administrative data, we study across-regime low-pay persistence in the context of an economic transformation process. We first show that individuals' initial allocation to the post-unification low-wage sector was close to random in terms of market-regime unobservables. Consistent with a weak connection between individuals' true productivity and their pre-unification low-wage status, the extent of across-regime state dependence is found to be small and appears to vanish over time. For males, across-regime state dependence is most pronounced among the medium- and high-skilled, suggesting the depreciation of human capital as an explanation.
History, Microdata, and Endogenous Growth
in: Annual Review of Economics, 2019
The study of economic growth is concerned with long-run changes, and therefore, historical data should be especially influential in informing the development of new theories. In this review, we draw on the recent literature to highlight areas in which study of history has played a particularly prominent role in improving our understanding of growth dynamics. Research at the intersection of historical data, theory, and empirics has the potential to reframe how we think about economic growth in much the same way that historical perspectives helped to shape the first generation of endogenous growth theories.