Raising the bar for models of turnover
It is well known that turnover rates fall with employee tenure and employer size. We document a new empirical fact about turnover: Among surviving employers, separation rates are positively related to industry-level exit rates, even after controlling for tenure and size. Specifically, in a dataset with over 13 million matched employee-employer observations for France, we find that, all else equal, a 1 percentage point increase in exit rates raises separation rates by 1/2 percentage point on average. Among current year hires, the average effect is twice as large. This relationship between exit ...
Growing old together: firm survival and employee turnover
Labor market outcomes such as turnover and earnings are correlated with employer characteristics, even after controlling for observable differences in worker characteristics. We argue that this systematic relationship constitutes strong evidence in favor of models where workers choose how much to invest in future productivity. Because employer characteristics are correlated with firm survival, returns to these investments vary across firm types. We describe a dynamic general equilibrium model where workers employed in firms more likely to survive choose to devote more time to productivity ...
Firm specific human capital vs. job matching: a new test
We use a unique data set on employee turnover by industry in Arizona to test competing theories of turnover. We find that industries with lower establishment survival rates have more employee turnover, even after controlling for differences in the distribution of employee tenure. This result is consistent with a model of turnover where employees choose how much firm specific human capital to accumulate, but it is inconsistent with job matching models.
Limited enforcement and the organization of production
This paper describes a dynamic, general equilibrium model designed to assess whether contractual imperfections in the form of limited enforcement can account for international differences in the organization of production. In the model, limited enforcement constrains agents to operate establishments below their optimal scale. As a result, economies where contracts are enforced more efficiently tend to be richer and emphasize large scale production. Calibrated simulations of the model reveal that these effects can be large and account for a sizeable part of the observed differences in the size ...
The poor, the rich and the enforcer: institutional choice and growth
We study economies where improving the quality of institutions ? modeled as improving contract enforcement ? requires resources, but enables trade that raises output by reducing the dispersion of marginal products of capital. We find that in this type of environment it is optimal to combine institutional building with endowment redistribution, and that more ex-ante dispersion in marginal products increases the incentives to invest in enforcement. In addition, we show that institutional investments lead over time to a progressive reduction in inequality. Finally, the framework we describe ...
Are labor markets segmented in Argentina? a semiparametric approach
We use data from Argentina?s household survey to evaluate the hypothesis that informal workers would expect higher wages in the formal sector. Using various definitions of informal employment we find that, on average, formal wages are higher than informal wages. Parametric tests suggest that a formal premium remains after controlling for individual and establishment characteristics. However, this approach suffers from several econometric problems, which we address with semiparametric methods. The resulting formal premium estimates prove either small and insignificant, or negative. Neither do ...
Are efficiency considerations important for understanding differences in the development of institutions? The authors model institutional quality as the degree to which obligations associated with exchanging capital can be enforced. Establishing a positive level of enforcement requires an aggregate investment of capital that is no longer available for production. When capital endowments are more unequally distributed, the bigger dispersion in marginal products makes it optimal to invest more resources in enforcement. The optimal allocation of the institutional cost across agents is not ...
The real impact of financial crises
Output falls precipitously in most emerging nations that experience financial crises. The authors conjecture that a significant part of the real impact of financial crises is due to the fact that during turbulent times firms choose to leave a large fraction of productive resources idle until business conditions improve. In the case of Mexicos 199495 crisis, they calculate that capital utilization could account for as much as half the drop in standard measures of total factor productivity. Capital utilization matters much more during financial crises than during other periods, they argue, ...
A New Perspective on the Finance-Development Nexus
The existing literature on financial development focuses mostly on the causal impact of the quantity of financial intermediation on economic development. This paper, instead, focuses on the role of the financial sector in creating securities that cater to the needs of heterogeneous investors. To that end, we describe a dynamic extension of Allen and Gale (1989)?s optimal security design model in which producers can tranche the stochastic cash flows they generate at a cost. Lower tranching costs in that environment lead to capital deepening and raise aggregate output. The implications of lower ...
Financial Engineering and Economic Development
The vast literature on financial development focuses mostly on the causal impact of the quantity of financial intermediation on economic development and productivity. This paper, instead, focuses on the role of the financial sector in creating securities that cater to the needs of heterogeneous investors. We describe a dynamic extension of Allen and Gale (1989)?s optimal security design model in which producers can tranche the stochastic cash flows they generate at a cost. Lowering security creation costs in that environment leads to more financial investment, but it has ambiguous effects on ...