The cleansing effect of the minimum wage in China
Florian Mayneris, Sandra Poncet 13 October 2014
Minimum wage laws are often shown to have little impact on employment as the labour price rise can be offset by lower turnover, lower markups, and heightened efficiency, or ‘cleansing’ effects. This column shows that in a fast-growing economy like China, there is a ‘cleansing’ effect of labour market standards. Minimum wage growth allows more productive firms to replace the least productive ones and forces incumbent firms to become more competitive. Both mechanisms boost the aggregate efficiency of the economy.
Can higher minimum wages ensure that economic development benefits the poorest without hindering growth? The question is controversial in both academic and policy circles. The recent riots in Bangladesh and Cambodia show that the social demand for a more equal distribution of the benefits of growth is high in developing countries. In China, polls reveal that concerns about inequality have grown as "roughly eight-in-ten have the view that the rich just get richer while the poor get poorer'' (Pewresearch Center 2012). The debate is also heated in developed economies.
Industrial organisation Labour markets
China, wages, firms, productivity
Political reservations and women’s entrepreneurship in India
Ejaz Ghani, William Kerr, Stephen D O'Connell 02 October 2014
Numerous countries have implemented seat reservations for women in politics over the past decades. Starting in the early 1990s, India’s flagship decentralisation reform instituted one-third seat reservations for women in local governance bodies. This column suggests that this political empowerment increased women’s economic empowerment through at least one channel, i.e. small-scale entrepreneurship. These findings suggest that political empowerment policies for women may additionally have beneficial economic effects in the longer run.
India’s 73rd Constitutional Amendment Act, passed in 1992, encompassed a set of reforms implementing a nationally-standardised and decentralised system of local government. These reforms, also known as the Panchayati Raj, importantly required a one-third seat reservation for women among local governance bodies. A large body of research has shown distinct effects of including women in the political sphere in India, e.g.
India, entrepreneurship, firms
DynEmp: New cross-country evidence on the role of young firms in job creation, growth, and innovation
Chiara Criscuolo, Peter N. Gal, Carlo Menon 26 May 2014
Young firms are known to play a central role in job creation. This column presents the results of a new OECD project on the dynamics of employment (DynEmp) based on an innovative methodology using firm-level data. It confirms that young firms play a central role in creating jobs, and in enhancing growth and innovation. Public policies can help by enabling firms to experiment, and by fostering the reallocation of resources towards the most productive firms. Structural reforms to product, labour, and capital markets, as well as bankruptcy laws that do not overly penalise failure, are particularly relevant.
Since well before the crisis, many OECD economies have been confronted with sluggish productivity growth. In the aftermath of the crisis, job creation has also stalled and has become an important policy issue. Business dynamics are at the core of the creative destruction process. Available evidence points to significant cross-country heterogeneity in the dynamism of businesses, even after taking into account differences in sectoral composition. This raises policymakers’ interest in understanding the role of framework conditions in this area.
Labour markets Productivity and Innovation
R&D, employment, growth, OECD, job creation, business cycles, firms, start-ups
Why don’t African firms create more jobs?
Leonardo Iacovone, Vijaya Ramachandran 07 February 2014
There is an urgent need for job creation in Africa yet something seems to be stunting firm growth. This column shows that African firms are about 20% smaller than their counterparts in other locations. It suggests small firms put the brake on growth as the burden of dealing with government and labour costs may increase with size, or perhaps as they start facing trust issues between managers and workers.
There is an urgent need for job creation in Africa. Many economies on the continent suffer high rates of under-employment and/or low-productivity employment. In addition, because of demographic factors, many countries anticipate that large numbers of youth will enter the workforce in the near future. This may be beneficial to economic growth but also a potential threat to social stability.
Development Labour markets
Africa, firms, jobs
Preparing to export
Danielken Molina, Marc Muendler 27 May 2013
Exporting is essential for economic development. But can firms move from local sales to export sales? How do firms prepare for exporting? This column presents new research showing that worker mobility is an important mechanism by which exporter knowledge spreads through the economy.
Exporting is an essential feature of strategies for economic development for very good reasons. A large body of empirical evidence shows that exporters are larger, more productive, pay higher wages and hire more skilled workers (Bernard and Jensen 1995). But do firms move from local sales to export sales? What choices do firms make in preparation for exporting? How do these choices affect a firm’s future export performance?
Labour Markets, exports, firms
Stock market turnover and corporate governance
Alex Edmans, Vivian W Fang, Emanuel Zur 16 February 2013
The stock market is a powerful tool for controlling corporations’ behaviour. But which is better, a highly liquid market or a number of large blockholders? This column argues in favour of liquidity. Evidence suggests that policymakers should not reduce stock liquidity through greater regulation. While the idea that liquidity encourages short-term trading – rather than long-term governance – sounds intuitive, deeper analysis shows that liquidity is beneficial because it encourages large shareholders to form in the first place, and allows shareholders to punish underperforming firms through selling their stake.
The stock market is a powerful tool for controlling corporation’s behaviour. But what is best:
financial markets, liquidity, corporate governance, firms, stocks
Are services traded differently?
Andrea Ariu 23 December 2012
International trade is traditionally thought of as goods crossing borders. Trade in services, however, is becoming increasingly important for high-income countries. This column, using Belgian firm-level data from 1995-2005, argues that trade in goods and services differ deeply in key aspects such as firm participation rates, size and frequency of shipments, entry and exit rates in foreign markets and in growth strategies.
International trade is traditionally thought of as goods crossing borders. Trade in services, however, is becoming increasingly important for high-income countries and its role is likely to grow substantially over the next years (Francois and Hoekman 2010).
Trade in services and goods differ along several critical dimensions (WTO 2010).
Belgium, firms, trade in services
Firm organisation: What we know and why we should care
Laura Alfaro, Paola Conconi, Harald Fadinger, Patrick Legros, Andrew Newman 02 December 2012
Increasingly, people are pointing the finger of blame for economic woe at large firms. This column argues that organisation design is often affected by government trade policy. If firm organisation design has implications for consumer welfare (in terms of prices and quality of product), evidence suggests that governments should make sure that in future, trade policy and corporate governance policy are more complementary.
A series of corporate calamities in the 2000s has helped to arouse suspicion amongst policymakers and the public that corporate organisation matters. Internal organisation issues are blamed for lost jobs, lost pensions and lost fortunes (e.g. Enron, Worldcom); for plane crashes in the US, lead-painted toys from China1, and, most devastatingly of all, the global crisis. These outcomes are increasingly ascribed to unaccountable managers, misaligned ownership structures, outsourcing and other internal organisation issues.
Industrial organisation International trade
trade, protectionism, firms, firm organisation
The (re)location effects of enterprise zones
Thierry Mayer, Florian Mayneris, Loriane Py 28 September 2012
Since the 1980s governments in the US, UK and France have been implementing ‘enterprise zones’ to tackle inequalities within cities. This column examines the latest French experiment in the 2000s. It suggests that the zones were largely successful in attracting small firms, but that this was mostly due to opportunistic relocation within municipalities.
Spatial inequalities within French municipalities are striking. Some depressed urban areas with low income, high unemployment rate, low level of education and deprived social housing are just a few blocks away from wealthy neighbourhoods. These urban disparities have important social and economic implications. They are often linked to social segregation and exclusion phenomena, with rich and poor people self-selecting into different neighbourhoods according to their willingness to pay for housing.
France, firms, Enterprise zones
Firms reorganise to grow (by hiring workers that know and earn less)
Lorenzo Caliendo, Ferdinando Monte, Esteban Rossi-Hansberg 31 August 2012
Firms that reorganise production to grow account for almost 40% of the value added created in the manufacturing sector. They add layers of management, increase by 7% the average hours worked in the firm, and reduce the average wage at pre-existing layers of managers or workers by 11%. This column presents new stylised facts about the way firms organise production and explains how recent advances in economic theory can help to understand these findings.
How do firms organise production? How does this organisation change as firms grow?
Business people deal with these questions all the time, and the academic literature has developed several strands of theories with answers that go from property rights over core resources to knowledge-based hierarchies (e.g. Hart and Moore 1990 and Garicano 2000). However, the ability of researchers to answer these questions with general empirical support has traditionally been hindered by lack of data.
Labour markets Productivity and Innovation
growth, firms, production