While standard microeconomic theory suggests that firms have no power over setting wages when markets are perfectly competitive, this view obviously clashes with the perceptions of the casual observer. This column uses data from Sweden to investigate the extent to which differences in firms’ pay are related to differences in physical productivity. It finds that firms that benefit from positive productivity shocks increase the wages of incumbent workers, and in particular firms among which there is substantial labour mobility. The evolution of productivity among such firms appears to be a crucial determinant of workers’ wages.
The valuation of firms, projects, and transactions directly affects investment decisions and the allocation of resources in the economy. But practitioners often dismiss 'academic' valuation techniques. This column uses a survey of valuation professionals to argue that the real-world choice of valuation methods is often arbitrary, and influenced more by professional subgroup than educational background. In which case, we should ask whether finance education beyond bachelor's degrees is merely a sideshow.
Bengt Holmström has been jointly awarded the 2016 Nobel Prize in Economic Sciences with Oliver Hart “for their contributions to contract theory”. This column outlines his key contributions.
Multinational production has become one of the most important means by which firms serve foreign markets. This column examines the role of multinational firms in aggregate business cycle transmission. The results suggest that the combined impact of all foreign multinationals is small but significant, accounting for about 10% of the productivity shocks in a typical country and leading to a somewhat more synchronised international business cycle.
Europeans work fewer hours than Americans. This column uses new survey data to disentangle the demographic dimensions and the drivers of this gap. In Eastern and Southern Europe, the gap is driven by lower employment rates, while in Western Europe and Scandinavia it is driven by fewer hours worked per person per week. Europe’s more generous holiday allowance alone accounts for between a third and a half of the gap.
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