Knowledge that Transforms

The relationship between employer size and within firm job mobility is investigated. Larger employers are posited to provide their workers with greater options for career advancement within the firm in an attempt to both protect (and encourage) the relatively higher investments in their workers and to evaluate employee performance. Using microdata on actual levels of internal mobility, direct support is found for the propositions of greater internal mobility in larger establishments.

A number of studies have found a positive relation between market share and profitability. Michael Porter argues that this need not hold when small firms find strategic niches protected by mobility barriers. This paper examines that hypothesis by comparing the profitability of large and small lines of business when the activities of the two groups (proxied by the allocation of sales across submarkets) differ on average. We find that in heterogeneous product mix industries profits of large LBs are no longer significantly greater than profits of smaller rivals, except that market leaders maintain their advantage regardless of product mix.

William Morgan, John Mutti, Mark Partridge, A Regional General Equilibrium Model of the United States: Tax Effects on Factor Movements and Regional Production, The Review of Economics and Statistics, Vol. 71, No. 4 (Nov., 1989), pp. 626-635

A neoclassical model of investment behavior is developed wherein firms are assumed to maximize the expected present value of net revenue under Leontief technology. Prices and yields are assumed to be stochastic. This framework yields investment as a function of the expected present value of the output from one unit of capital and the variance of the expected value. This theory is applied to investment in the almond industry. The model outperforms both a model without uncertainty and one with neither uncertainty nor adjustment costs using in-sample and out-of-sample tests.

Are financial ratios an observed quantity that is influenced by firms or capital and product markets? The current body of empirical research concentrates on the time series behavior of such ratios when corporate distress is revealed. In this study the time series properties of joint-concern firms is examined. It is shown that for six financial ratios under examination, the data are consistent with partial adjustment process with finite adjustment durations. These durations are estimated through a methodology that does not require an a priori knowledge of the level toward which ratios are adjusted. Furthermore, the order of the six discerned durations is consistent with common wisdom.

Marginal excess burden, defined as the change in deadweight loss for an additional dollar of tax revenue, has been measured for labor taxes, output taxes, and capital taxes generally.This paper points out that there is no well-defined way to raise capital taxes in general, because the taxation of income from capital depends on many different policy instruments including the statutory corporate income tax rate, the investment tax credit rate, depreciation lifetimes, declining balance rates for depreciation allowances, and personal tax rates on noncorporate income, interest receipts, dividends, and capital gains.Marginal excess burden is measured for each of these different capital tax instruments, using a general equilibrium model that encompasses distortions in the allocation of real resources over time, among industries, between the corporate and noncorporate sectors, and among diverse types of equipment, structures, inventories, and land.Although numerical results are sensitive to specifications for key substitution elasticity parameters, important qualitative results are not.We find that an increase in the corporate rate has the highest marginal excess burden, because it distorts intersectoral and interasset decisions as well as intertemporal decisions.At the other extreme, an investment tax credit reduction has negative marginal excess burden because it raises revenue while reducing interasset distortions more than it Increases intertemporal distortions.In general, we find that marginal excess burdens of different capital tax instruments vary significantly.They can be more or less than the marginal excess burden of the payroll tax or the progressive personal income tax.

Joel Slemrod, Are Estimated Tax Elasticities Really Just Tax Evasion Elasticities? The Case of Charitable Contributions, The Review of Economics and Statistics, Vol. 71, No. 3 (Aug., 1989), pp. 517-522

A model of consumption of residential energy in dwellings is developed, distinguishing between attributes of housing that provide direct benefits to consumers and attributes that serve as inputs in the production of final goods, for example, the thermal comfort of dwellings. Empirical estimates are made of the mode, based upon the Annual Housing Survey, and the results are used to calculate the effects of changes in energy prices on the consumption of housing, residential energy, and other goods. The analysis suggests that the adjustment process within the housing market permits a great deal of substitution in response to energy price changes.

The authors conduct tests to gain insight into the empirical relevance of the proposition that factor prices converge as trade expands. The test results support the proposition of factor price convergence in sixteen OECD countries during the 1961-84 period. Regression analyses support the view that trade openness has been the most significant factor influencing wage variations. This paper also distinguishes between "high wage" and "low wage" countries. Pooled ordinary least squares estimates indicate that Canada, the United States, Denmark, West Germany, the Netherlands, and Sweden are "high wage" and Japan, New Zealand, Austria, Belgium, Finland, France, Ireland, Norway, Switzerland, and the United Kingdom are "low wage" countries. Further results using the Within estimations technique are provided.