An Italian job: the need for collective wage bargaining reform. Bruegel Policy Brief ISSUE 2016/11 - JULY 2016

Highlights: Since the mid-1990s, Italy has been characterised by a lack of labour productivity growth, combinedwith a 60 percent growth in labour costs, 20 percentage points above euro-area average consumer price growth. As a consequence, Italy has become less competitive compared to its euro-area partners, the profitability of its firms has dropped and real GDP-per-capita has flatlined. • At the root of the substantial discrepancy between wages and productivity is Italy’s system of centralised wage bargaining which, in many ways, is designed without regard for the underlying industrial structure and geographical heterogeneity of the Italian economy.This has fostered perverse incentives and imbalances within Italy. • Collective wage bargaining, and in particular the determination of base salaries, should be moved from the national to the regional level for all contracts, in the public and private sectors.The Mezzogiorno,which might superficially be seen as losing out from this policy, would actually gain the most in competitiveness terms. • Furthermore, measures should be taken so that, in the long run, the Italian industrial structure evolves into a less fragmented small-company-based economy. This firm consolidation would likely expand the use of firm-level agreements and performance payments, and would improve Italy’s productivity and competitiveness overall.

Innovation and internationalization of Latin American services

Innovation and internationalization in services are key drivers of structural transformation, productivity growth and overall economic performance in Latin America. The services sector accounts for two thirds of the region’s GDP and provides over 60% of its employment. These shares are higher than in other developing regions, but still lower than in countries with higher levels of per capita income. The spread of information and communication technologies in Latin America over the past three decades has vastly enhanced both the tradability of services and the sector’s propensity to innovate. Long considered unrelated processes, both internationalization and innovation are today widely recognized as key and complementary sources of firm-level competitiveness and human capital enhancement. The advent of many novel types of business and consumer services is furthermore a key factor in the rising insertion of Latin American firms in regional and global value chains and transnational production networks, which are now the predominant form of organization of international production and trade. This volume explores three different levels of interaction between internationalization and innovation in the services sector in Latin America. Part I analyses the role of services in manufacturing and other sectors’ global value chains from a theoretical perspective, drawing on the experiences of Brazil and Mexico. Part II reviews innovation and internationalization policies and their effects on the performance of the services sector. Part III presents a series of case studies on innovation and internationalization linkages in Brazil, Chile, Costa Rica and Mexico. The book concludes that, in order for Latin American countries and firms to upgrade into services value chains, public and private initiatives must generate a host of regional public goods —enhanced investment climates, supply of skills, greater access to finance, improved protection of intellectual property, better value appropriation, enhanced efforts at standardization and quality certification— to strengthen the links between innovation and internationalization.

Price stabilization and the risk-averse firm

An analytically simple and tractable approach to firm-level welfare analysis of complete and partial mean-preserving price stabilization for producers with general risk-averse preferences facing a stochastic technology is developed. Necessary and sufficient conditions for price stabilization to be welfare enhancing are derived under different assumptions of the producer's preferences and the producer's technology. Existing stabilization results for the risk-averse firm are shown to be corollaries of these more general results.

The role of the board in firm strategy: Integrating agency and organisational control perspectives

The role of the board of directors in firm strategy has long been the subject of debate. However, research efforts have suffered from several deficiencies: the lack of an overarching theoretical perspective, reliance on proxies for the strategy role rather than a direct measure of it and the lack of quantitative data linking this role to firm financial performance. We propose a new theoretical perspective to explain the board's role in strategy, integrating organisational control and agency theories. We categorise a board's approach to strategy according to two constructs: strategic control and financial control. The extent to which either construct is favoured depends on contextual factors such as board power, environmental uncertainty and information asymmetry.

Multiple directorships and corporate performance in Australian listed companies

How many directorships are too many? Globally, normative advice emphasises the importance of limiting the number of directorships any individual should hold due to the workloads they entail. However, there is little empirical evidence to support this view. Rather, there is a strong tradition of supporting multiple directorships as a mechanism for the firm to co-opt external resources. To explore the issue of director workloads and multiple directorships, we first consider the issues related to multiple directorships and outline the conclusions of extant international and Australian studies into multiple directorships. We then detail our objectives in undertaking this research and our approach to data collection. Our findings indicate that the incidence of multiple directorships in Australian listed companies is low. We also find that many of the apparent examples of multiple directorships are due to related entities, which share common directors and, due to the nature of these entities, have much lower workload requirements. Further, there does not appear to be any relationship between holding multiple directorships and firm financial performance. Finally, we discuss the implications for boards and those interested in governance, particularly the need to ensure governance recommendations and guidelines reflect empirical findings. We offer one solution to address the concerns of boards, investors, other stakeholders and the community regarding multiple directorships: board and individual director evaluations.

How does ownership structure affect capital structure and firm value?:Recent evidence from East Asia

The present paper examines the effects of ownership structures on capital structure and firm valuation. It argues that the effects of separation of control from cash flow rights on capital structure and firm value also depend on the separation of control from management as well as on legal rules and enforcement defining investors' protection. We obtain firm-level panel data (three stage least squares, 3SLS) estimates from four of the East Asian countries worst affected by the last crisis. There is evidence that the general wisdom that higher control than cash flow rights may lower firm value may be reversed among owner-managed family firms in the sample countries. © 2007 The Authors Journal compilation © 2007 The European Bank for Reconstruction and Development.

Putting people first? Chinese state-owned enterprises' adjustment to globalisation

This paper analyses the impact of FDI on the employment, productivity, profitability and survival performance of urban SOEs in China, with the aid of a rich panel data set over the period 1999–2005. Our estimation strategy controls for the endogeneity of a number of regressors and accounts for firm-level unobserved heterogeneity. Four key results emerge from the analysis: (i) Firmlevel foreign finance enhances the employment and productivity growth of SOEs, as well as their survival prospects; (ii) Competition from sectoral FDI has a deleterious impact on the growth and survival probability of SOEs without access to any foreign capital; (iii) Export-oriented FDI in downstream sectors has negative performance ramifications; and (iv) There are no discernible spillover effects that can be attributed to FDI in upstream sectors, suggesting limited linkages between multinational firms and SOEs.

Analysis of productivity differences among foreign and domestic firms:evidence from Germany

This paper presents differences in firm-level total factor productivity (TFP) across 22 manufacturing and 17 service industries in Germany over the period 1995–2004. It is an attempt to study whether and to what extent foreign multinational enterprises (MNEs) are more productive relative to German firms. As well as distinguishing between foreign and domestic firms, we also distinguish between German MNEs and domestic firms that do not have any foreign presence. Controlling for endogeneity through semi-parametric techniques, our findings indicate considerable heterogeneity in firm performance across types of firms. The foreign/domestic distinction is not as clear cut as has been suggested elsewhere; multinationality is important in explaining productivity differences rather than foreignness.

Institutions and firm ownership structure:evidence from Central and Eastern Europe

FDI plays a key role in development, particularly in resource-constrained transition economies of Central and Eastern Europe with relatively low savings rates. Gains from technology transfer play a critical role in motivating FDI, yet potential for it may be hampered by a large technology gap between the source and host country. While the extent of this gap has traditionally been attributed to education, skills and capital intensity, recent literature has also emphasized the possible role of institutional environment in this respect. Despite tremendous interest among policy-makers and academics to understand the factors attracting FDI (Bevan and Estrin, 2000; Globerman and Shapiro, 2003) our knowledge about the effects of institutions on the location choice and ownership structure of foreign firms remains limited. This paper attempts to fill this gap in the literature by examining the link between institutions and foreign ownership structures. To the best of our knowledge, Javorcik (2004) is the only papers, which use firm-level data to analyse the role of institutional quality on an outward investor’s entry mode in transition countries. Our paper extends Javorcik (2004) in a number of ways: (a) rather than a cross-section, we use panel data for the period 1997-2006; (b) rather than a binary variable, we use the percentage foreign ownership as continuous variable; (c) we consider multi-dimensional institutional variables, such as corruption, intellectual property rights protection and government stability. We also use factor analysis to generate a composite index of institutional quality and see how stronger institutional environment could affect foreign ownership; (d) we explore how the distance between institutional environment in source and host countries affect foreign ownership in a host country. The firm-level data used includes both domestic and foreign firms for the period 1997-2006 and is drawn from ORBIS, a commercially available dataset provided by Bureau van Dijk. In order to examine the link between institutions and foreign ownership structures, we estimate four log-linear ownership equations/specifications augmented by institutional and other control variables. We find evidence that the decision of a foreign firm to either locate its subsidiary or acquire an existing domestic firm depends not only on factor cost differences but also on differences in institutional environment between the host and source countries.

The political economy of industry dynamics in China:a microeconomic investigation

Using a unique firm level data, this paper analyses the role of political connections in the post-entry performance of private start-up companies in China. It documents robust evidence that political affiliation enhances firms’ survival and growth prospects. But interestingly politically neutral start-ups enjoy faster productivity improvements conditional on survival.. We conclude that the close association between the state and a segment of the business community is leading to sub-optimal resource allocation in the economy by interfering with the process of market selection.

Work stressors, strains and hospital unit performance

Hospital employees who work in an environment with zero tolerance to error, face several stressors that may result in psychological, physiological, and behavioural strains, and subsequently, in suboptimal performance. This thesis includes two studies which investigate the stressor-to-strain-to-performance relationships in hospitals. The first study is a cross-sectional, multi-group investigation based on secondary data from 65,142 respondents in 172 acute/specialist UK NHS trusts. This model proposes that senior management leadership predicts social support and job design which, in turn, moderate stressors-to-strains across team structure. The results confirm the model's robustness. Regression analysis provides support for main effects and minimal support for moderation hypotheses. Therefore, based on its conclusions and inherent limitations, study one lays the framework for study two. The second study is a cross-sectional, multilevel investigation of the strain-reducing effects of social environment on externally-rated unit-level performance based on primary data from 1,137 employees in 136 units, in a hospital in Malta. The term "social environment" refers to the prediction of the moderator variables, which is to say, social support and decision latitude/control, by transformational leadership and team climate across hospital units. This study demonstrates that transformational leadership is positively associated with social support, whereas team climate is positively associated with both moderators. At the same time, it identifies a number of moderating effects which social support and decision latitude/control, both separately and together, had on specific stressor-to-strain relationships. The results show significant mediated stressor-to-strain-to-performance relationships. Furthermore, at the higher level, unit-level performance is positively associated with shared unit-level team climate and with unit-level vision, the latter being one of the five sub-dimension of transformational leadership. At the same time, performance is also positively related to both transformational leadership and team climate when the two constructs are tested together. Few studies have linked the buffering effects of the social environment in occupational stress with performance. Therefore, this research strives to make a significant contribution to the occupational stress and performance literature with a focus on hospital practice. Indeed, the study highlights the wide-ranging and far-reaching implications that these findings provide for theory, management, and practice.

The economic impact of high growth start-ups:understanding the challenge for policy in the UK

Objectives The creation of more high-growth firms continues to be a key component of enterprise policy throughout the countries of the OECD. In the UK the developing enterprise policy framework highlights the importance of supporting businesses with growth potential. The difficulty, of course, is the ability of those delivering business support policies to accurately identify those businesses, especially at start-up, which will benefit from interventions and experiences an enhanced growth performance. This paper has a core objective of presenting new data on the number of high growth firms in the UK and providing an assessment of their economic significance. Approach This paper uses a specially created longitudinal firm-level database based on the Inter-Departmental Business Register (IDBR) held by the Office of National Statistics (ONS) for all private sector businesses in the UK for the period 1997-2008 to investigate the share of high-growth firms (including a sub-set of start-up more commonly referred to as gazelles) in successive cohorts of start-ups. We apply OECD definitions of high growth and gazelles to this database and are able to quantify for the first time their number (disaggregated by sector, region, size) and importance (employment and sales). Prior Work However, what is lacking at the core of this policy focus is any comprehensive statistical analysis of the scale and nature of high-growth firms in cohorts of new and established businesses. The evidence base in response to the question “Why do high-growth firms matter?” is surprisingly weak. Important work in this area has been initiated by Bartelsman et al., (2003),Hoffman and Jünge (2006) and Henreksen and Johansson (2009) but to date work in the UK has been limited (BERR, 2008b). Results We report that there are ~11,500 high growth firms in the UK in both 2005 and 2008. The share of high growth start-ups in the UK in 2005 (6.3%) was, contrary to the widely held perception in policy circles, higher than in the United States (5.2%). Of particular interest in the analysis are the growth trajectories (pattern of growth) of these firms as well as the extent to which they are restricted to technology-based or knowledge-based sectors. Implications and Value Using hitherto unused population data for the first time we have answered a fundamental research and policy question on the number and scale of high growth firms in the UK. We draw the conclusion that this ‘rare’ event does not readily lend itself to policy intervention on the grounds that the significant effort needed to identify such businesses ex ante would appear unjustified even if it was possible.

The carbon dioxide emissions of firms:a spatial analysis

In order to gain a greater understanding of firms' 'environmental behaviour' this paper explores the factors that influence firms' emissions intensities and provides the first analysis of the determinants of firm level carbon dioxide (CO2) emissions. Focussing on Japan, the paper also examines whether firms' CO2 emissions are influenced by the emissions of neighbouring firms and other possible sources of spatial correlation. Results suggest that size, the capital-labour ratio, R&D expenditure, the extent of exports and concern for public profile are the key determinants of CO2 emissions. Local lobbying pressure, as captured by regional community characteristics, does not appear to play a role, however emissions are found to be spatially correlated. This raises implications for the manner in which the environmental performance of firms is modelled in future. © 2013 Elsevier Inc.

Knowledge capital, endogenous growth and regional disparities in productivity:multi-level evidences from China

This paper examines the role of knowledge capital in persistent regional productivity disparities in developing countries. The hypotheses are tested using regional and firm level longitudinal data from China. It is found that inequalities in knowledge creation and transfer, both inter-generational and international, played a significant role in increasing regional disparities in productivity. These inequalities are exacerbated by the accumulative nature of knowledge capital. All this leads to self-perpetuating cycles of success and failure, particularly compounded with asymmetric financial and human capital between different regions.

Firm size, source of finance, and growth:evidence from China

Using a comprehensive firm-level data set from China spanning the period 1998–2005, this study investigates the relationship between firm size, financing sources, and total factor productivity growth. Controlling for the endogeneity of financing sources, we find that firm size plays an important role in the way financial structure affects the growth process. Domestic bank loans are more effective for bigger firms, while self-raised finance is more beneficial to smaller firms’ growth. We also uncover evidence that ownership mediates the relationship between firm size, finance, and growth.