NALMF

This project aims to study how the signing of International Investment Agreements (IIAs) changes the structure of Canadian firms that trade and invest in IIA partner countries. The goal is to estimate how the investment protection portion of these agreements impacts Canadian firms’ decision to vertically integrate with its intermediate input suppliers in those countries or to horizontally integrate by expanding to new markets. The key issue is determining how much those agreements affect economic growth in Canada.

Additional dataset: Canadian Direct Investment Abroad (CDIA)

Beginning with the work of the economist Joan Robinson in the 1930’s, the word “monopsony" has been used in economics to refer to any market situation in which the buyer of a good possesses market power (i.e. some ability to choose the price at which they buy), regardless of whether or not there is actually only a single such buyer. Although monopsony power may be an important phenomenon in many different contexts, a growing body of research has focused on identifying and quantifying its extent in labor markets. Unfortunately, the existing empirical literature on this topic has thus far not meaningfully addressed one especially significant question, namely: to what extent do firms exploit all of the potential monopsony power available to them in setting the wages of their workers? The goal of our proposed study is to directly explore this question by using the CEEDD to simultaneously estimate both wage markdowns, or reduction of wages below what would be earned in a perfectly competitive market where firms have no wage-setting power, as well as the “full'' markdowns that would be predicted by standard models of an imperfectly competitive labor market, given the labor supply elasticity facing particular firms (a measure of how likely workers are to quit in response to wage cuts). Our hope is that these estimates will allow us to measure not only the average extent to which firms utilize their available wage-setting power, but also to explore heterogeneity in the same and to identify relevant correlates of being a “high-utilization" or “low-utilization" (of monopsony power) firm. We are particularly interested in studying whether firms with governance structures that allow for employee participation, including collective bargaining, are less aggressive monopsonists, as predicted by recent theoretical work on the topic.

The post-Great Recession (2007-2009) economy has exhibited a slow rate of recovery. This is especially evident when examining unemployment. One suggested underlying cause of this trend is the significant decline in new firms, or new entrants, during 2008-2009. In Canada, while there has been a slow decrease in unemployment, the employment rate has remained steady. Thus, it appears the ability to create jobs has not yet recovered since the Great Recession. This raises the question of what factors determine a firm’s status as a job creator. The firm entry rate in Canada is decreasing, while the job creation rate of firms who do enter the market is 1.5 to 2.5%. This is greater than the aggregate annual job growth in Canada. This trend shows firms that have an established position in the market are not net job creators, and new firms may be job creators.  This study hopes to answer the following questions: (1) what factors affect the initial performance of new firms and (2) what determines the fact that some firms are high growth (job creators), while others rapidly shrink. The study will also focus on how constraints after a financial shock (i.e., the Great Recession) affect the entry decision of new firms. 

We document the importance of secondary markets (i.e., business re-sale) for the growth and establishment of private businesses using administrative matched employer-employee data from Canada. In particular, we quantify the extent of ownership turnover among private firms and identify the characteristics of owners and firms that are most often associated with engaging in such transactions. In addition, by tracking individual firms over time, we document how firm growth responds to the presence of secondary markets and the corresponding impact on industry composition. This project fills a gap in the firm dynamics literature which has so far ignored the role of secondary markets for private businesses.

The CDER firm data will be studied to estimate how long top productive firms tend to stay highly productive and what their productivity level tends to be before (and potentially after) they are at the top end of the productivity distribution. Also being examined is whether changes in firm productivity have different dynamics depending upon whether such changes are negative versus positive, or small versus large. This project could influence most modern macroeconomic models, which tend to embed very simple dynamic processes.

Empirical evidence for many countries suggests that trade intermediaries, such as wholesalers, account for a substantial share of the total import value. Given that these firms constitute an intermediate step in the distribution of merchandise, wholesalers’ decisions of what products to import and from where are likely to affect the nature and magnitude of trade frictions, as well as the degree of competition faced by domestic producers. In order to contribute to a better understanding of the role played by wholesalers, this project is focused on studying how their import activity affects firms in the manufacturing sector. In particular, it aims to identify the multiple margins that manufacturing firms adjust in response to higher import penetration in consumption and intermediate goods by wholesalers.

Asymmetric information, when one party in a transaction possesses more information than the other, is common in creditor-borrower relations. When proper and complete information is not available, creditors may not be able to assess the ability of a firm to repay debt. Thus, this problem of asymmetric information may cause creditors to ration loans, or not price debt efficiently (i.e. the price that truly reflects the position of the firm). This may limit access of funds to productive firms, especially Small and Medium Enterprises (SMEs), that are known to employ the majority of an economy’s workforce. Some mechanisms exist that may mitigate the problems associated with information asymmetry. For example, bank-firm relationships may complement available financial information. Through long-term relationships, banks may obtain “soft information” such as the quality of management, revenue volatility, customer loyalty, etc. The purpose of this paper is to determine if such bank-firm relationships improve debt pricing of SMEs and other frictions associated with asymmetric information.

This project studies the impact of environmental regulation on the manufacturing sector. It examines how firms' strategic responses affect economic outcomes, which in turn affect the cost of regulation and the ability to achieve policy goals. First, this project quantifies some of these effects by estimating the impact of Canadian air quality regulation on plant level outcomes including: productivity, output, input use, emissions, likelihood-of-exit, investment, and capital stock. Second, this project studies the link between regulation induced shifts in firms' production/investment location choices, and productivity. These location choices can increase the cost of regulation by affecting productivity via changes in agglomeration economies, which suggests that changes to the regulation could be more efficient at reducing pollution.

As robotics technologies have become both more advanced and affordable for adoption by firms, there has been growing academic interest in understanding the effects of robotics on firm productivity and on employees within organizations (Acemoglu and Restrepo 2016, Agarwal et al. 2017, Brynjolfsson and Mitchell 2017, Felten et. al 2018).  However, to date there has been no published work examining a fundamental question—have investments in robots increased firm productivity?  Preliminary work thus far on employment effects has also faced limitations due to coarse measures of employee skills and occupations.  The scope of the project includes answering the following questions: 

1. What is the effect of robot investments on Canadian firm productivity?
2. What is the effect of robot investments on aggregate employment within the firm?
3. Do robots heterogeneously affect the employment of different types of workers within the firm?  For example, are certain worker types more likely to be displaced by robots relative to others (high skilled, low skilled, managers)?

While there is a large body of literature studying the impact of minimum wages on employment, there is less research into how minimum wages affect firms. Minimum wages increase the cost of paying workers to firms. This gives firms a strong incentive to look for efficiencies, such as increasing performance standards or asking for greater proficiency in job duties. If workers can accomplish more in the same amount of time, they justify their pay increases; if this happens on large enough scale, the result is higher firm productivity. We will study minimum wage increases in Canada from 2001 to 2015 and explore whether these increases resulted in higher firm productivity.