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THE OPTION TO QUIT: THE EFFECT OF EMPLOYEE STOCK OPTIONS ON TURNOVER
January 2014
Working Paper Number:
CES-14-06
We show that in the years following a large broad-based employee stock option (BBSO) grant, employee turnover falls at the granting firm. We find evidence consistent with a causal relation by exploiting unexpected changes in the value of unvested options. A large fraction of the reduction in turnover appears to be temporary with turnover increasing in the 3rd year following the year of the adoption of the BBSO plan. We also find that the effect of BBSO plans is larger at market leaders, identified as firms with high industry-adjusted market-to-book ratios, market share or industry-adjusted profit margins, as measured at the time of the grant.
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Talent Recruitment and Firm Performance: The Business of Major League Sports
November 2013
Working Paper Number:
CES-13-54R
Firms rely heavily on their investments in human capital to achieve profits. This research takes advantage of detailed information on worker performance and confidential information on firm revenue and operating costs to investigate the relationship between talent migration and firm profitability in major league sports. One key problem that firms have is identifying performance measures for its workforce, especially for potential employees (recruits). In contrast to nearly all other industries, in the industry of professional team sports, detailed information about the past performance of each individual worker (athlete) is known to all potential employers. First, I demonstrate using public data that worker (athlete) statistics aggregated to the establishment (team) level correlate with success on the field (measured in win percentage). Second, I use confidential data from the 2007 Economic Censuses, and from the 2007 and 2008 Service Annual Surveys to investigate the link between individual worker performance and team profitability, controlling for many other aspects of the sports business, specifically taking account of the mobility of athletic 'stars' and 'superstars' from one team to another. The investigations in this paper provide support for the hypothesis that hiring talented individuals (stars) will increase a firm's profit. However, there is not convincing support for the incremental benefit of hiring superstars. The mixed evidence suggests a benefit on balance.
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EARNINGS ADJUSTMENT FRICTIONS: EVIDENCE FROM SOCIAL SECURITY EARNINGS TEST
September 2013
Working Paper Number:
CES-13-50
We study frictions in adjusting earnings to changes in the Social Security Annual Earnings Test (AET) using a panel of Social Security Administration microdata on one percent of the U.S. population from 1961 to 2006. Individuals continue to "bunch" at the convex kink the AET creates even when they are no longer subject to the AET, consistent with the existence of earnings adjustment frictions in the U.S. We develop a novel framework for estimating an earnings elasticity and an adjustment cost using information on the amount of bunching at kinks before and after policy changes in earnings incentives around the kinks. We apply this method in settings in which individuals face changes in the AET bene.t reduction rate, and we estimate in a baseline case that the earnings elasticity with respect to the implicit net-of-tax share is 0.23, and the .xed cost of adjustment is $152.08.
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Product Quality and Firm Heterogeneity in International Trade
March 2013
Working Paper Number:
CES-13-08
I develop and implement a methodology for obtaining plant-level estimates of product quality from revenue and physical output data. Intuitively, firms that sell large quantities of output conditional on price are classified as high quality producers. I use this method to decompose cross-plant variation in price and export status into a quality and an efficiency margin. The empirical results show that prices are increasing in quality and decreasing in efficiency. However, selection into exporting is driven mainly by quality. The finding that changes in quality and efficiency have different impact on the firm's export decision is shown to be inconsistent with the traditional iceberg trade cost formulation and points to the importance of per unit transport costs.
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Are We Undercounting Reallocation's Contribution to Growth?
January 2013
Working Paper Number:
CES-13-55R
There has been a strong surge in aggregate productivity growth in India since 1990, following
significant economic reforms. Three recent studies have used two distinct methodologies to decompose the sources of growth, and all conclude that it has been driven by within-plant increases in technical efficiency and not between-plant reallocation of inputs. Given the nature of the reforms, where many barriers to input reallocation were removed, this finding has surprised researchers and been dubbed 'India's Mysterious Manufacturing Miracle.' In this paper, we show that the methodologies used may artificially understate the extent of reallocation. One approach, using growth in value added, counts all reallocation growth arising from the movement of intermediate inputs as technical efficiency growth. The second approach, using the Olley-Pakes decomposition, uses estimates of plant-level total factor productivity (TFP) as a proxy for the marginal product of inputs. However, in equilibrium, TFP and the marginal product of inputs are unrelated. Using microdata on manufacturing from five countries ' India, the U.S., Chile, Colombia, and Slovenia ' we show that both approaches significantly understate the true
role of reallocation in economic growth. In particular, reallocation of materials is responsible for over half of aggregate Indian manufacturing productivity growth since 2000, substantially larger than either the contribution of primary inputs or the change in the covariance of productivity and size.
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Materials Prices and Productivity
June 2012
Working Paper Number:
CES-12-11
There is substantial within-industry variation, even within industries that use and produce homogeneous inputs and outputs, in the prices that plants pay for their material inputs. I explore, using plant-level data from the U.S. Census Bureau, the consequences and sources of this variation in materials prices. For a sample of industries with relatively homogeneous products, the standard deviation of plant-level productivities would be 7% lower if all plants faced the same materials prices. Moreover, plant-level materials prices are both persistent across time and predictive of exit. The contribution of net entry to aggregate productivity growth is smaller for productivity measures that strip out di'erences in materials prices. After documenting these patterns, I discuss three potential sources of materials price variation: geography, di'erences in suppliers. marginal costs, and suppliers. price discriminatory behavior. Together, these variables account for 13% of the dispersion of materials prices. Finally, I demonstrate that plants.marginal costs are correlated with the marginal costs of their intermediate input suppliers.
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The Slow Growth of New Plants: Learning about Demand?
March 2012
Working Paper Number:
CES-12-06
It is well known that new businesses are typically much smaller than their established industry competitors, and that this size gap closes slowly. We show that even in commodity-like product markets, these patterns do not reflect productivity gaps, but rather differences in demand-side fundamentals. We document and explore patterns in plants' idiosyncratic demand levels by estimating a dynamic model of plant expansion in the presence of a demand accumulation process (e.g., building a customer base). We find active accumulation driven by plants' past production decisions quantitatively dominates passive demand accumulation, and that within-firm spillovers affect demand levels but not growth.
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Entry Costs and Increasing Trade
December 2011
Working Paper Number:
CES-11-38R
Using confidential microdata from the US Census, we find that the fraction of manufacturing plants that export rose from 21% in 1987 to 39% in 2006. It has been suggested that similar trends in other countries may have been caused by declining costs of entering foreign markets. Our study tests this hypothesis for the first time. Both reduced form and structural estimation approaches find little evidence that entry costs declined significantly for US firms over this period. Despite the large literature on changes in variable costs to trade such as tariffs, our estimations represent the first analysis of how the costs of entering foreign markets have changed over time.
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A Guide to the MEPS-IC Government List Sample Microdata
September 2011
Working Paper Number:
CES-11-27
The Medical Expenditure Panel Survey-Insurance Component (MEPS-IC) is conducted to provide nationally representative estimates on employer sponsored health insurance. MEPSIC data are collected from private sector employers, as well as state and local governments. While similar information is gathered from these two sectors, differences in the survey process exist. The goal of this paper is to provide details on the public sector including types of state and local government employers, sample design, general information on the data collected in the MEPS-IC, and additional sources of information.
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Wage Dynamics along the Life-Cycle of Manufacturing Plants
August 2011
Working Paper Number:
CES-11-24R
This paper explores the evolution of average wage paid to employees along the life-cycle of a manufacturing plant in U.S. Average wage starts out low for a new plant and increases along with labor productivity, as the plant survives and ages. As a plant experiences productivity decline and approaches exit, average wage falls, but more slowly than it rises in the case of surviving new plants. Moreover, average wage declines slower than productivity does in failing plants, while it rises relatively faster as productivity increases in surviving new plants. These empirical regularities are studied in a dynamic model of labor quality and quantity choice by plants, where labor quality is reflected in wages. The model's parameters are estimated to assess the costs a plant incurs as it alters its labor quality and quantity in response to changes in its productivity over its life-cycle.
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