Reallocation Effects Research Articles

Labor reallocation effects of furlough schemes: Evidence from two recessions in Spain

Labor reallocation effects of furlough schemes: Evidence from two recessions in Spain

China's Low-carbon city policy and manufacturing firms' servitization: Do environmental regulations matterʔ

Manufacturing servitization is an effective way to improve both environmental performance and economic benefits in developing countries. In this paper, we first propose the firm-level manufacturing servitization (FMS) measurement method. Then, based on Chinese firm-level data for 2000–2015, we take low-carbon city pilot (LCCP) policy implementation as a quasi-natural experiment to investigate the effect of low-carbon city governance on FMS. The propensity score matching-difference-in-differences (PSM-DID) model results indicate that the construction of LCCP policy could significantly improve FMS. In addition, we explain the promoting effect of low-carbon city governance on FMS by enhancing innovation intensity and promoting pollution factor substitution. Specifically, low-carbon city governance increases the innovation intensity of enterprises and promotes service factors as substitutes for other pollution production factors, changing the service factor input structure. Furthermore, by dynamically decomposing aggregate FMS growth, we found that LCCP policy generates a positive within-firm effect for surviving enterprises. However, the role of the resource reallocation effect has not been fully explored. Based on the findings, this study offers more theoretical backing and empirical substantiation for developing countries' pursuit of simultaneously achieving sustainability and economic growth under environmental regulations.

Does Artificial Intelligence Improve Export Technical Complexity Upgrade of Manufacturing Enterprises? Evidence from China

Export technical complexity is an effective indicator to measure the upgrading of a country’s trade structure and high-quality development of trade. This study examines the impact of artificial intelligence on the export technical complexity upgrading of Chinese manufacturing enterprises at the enterprise and industry levels. It analyses matched data from the China Customs and Chinese Industrial Enterprises databases from 2000 to 2015. The results show that artificial intelligence promotes the upgrading of export technical complexity in Chinese manufacturing enterprises. The impact of artificial intelligence on upgrading export technical complexity is dynamic, showing an “inverted U-shape.” Heterogeneity test results indicate that artificial intelligence has a greater effect on export technical complexity upgrading if it features high-tech complexity, or the enterprises are local or in the eastern region of China. The mechanism results indicate that artificial intelligence significantly promotes labor productivity and innovation to upgrade China’s manufacturing enterprises’ export technical complexity. Finally, industry-level analysis shows that the application intensity of artificial intelligence substantially affects the average export technical complexity upgrades of Chinese manufacturing enterprises through spillover effects and resource reallocation effects. These findings promote upgrading export technical complexity at the enterprise and industry levels.

Recent trends in firm‐level total factor productivity in the UK: new measures, new puzzles

AbstractUnderstanding the poor productivity performance of the UK economy since the financial crisis is complicated by the well‐known challenges in estimating total factor productivity (TFP) using only revenue data. We develop a structural framework to infer quality‐adjusted TFP from an estimated firm‐level revenue function. We use microdata for two sectors previously identified as being significant contributors to the UK's productivity growth slowdown—manufacturing and ICT—from 2008 to 2019. The revenue function is estimated using the Blundell–Bond System GMM estimator. We also use an alternative cost‐shares approach to identifying and measuring TFP. For both methods, we find an overall fall in TFP levels in manufacturing and a rise in ICT. We find a striking decline of between 13% and 18% in the level of within‐firm manufacturing TFP, and of between 11% and 16% in ICT, although with reallocation effects differing between the two sectors. The finding of declining within‐firm TFP is robust, although the magnitude varies between methods. We discuss a possible explanation for this extended UK productivity puzzle based on the relative underperformance of UK firms in international markets.

Falling Interest Rates and Credit Reallocation: Lessons from General Equilibrium

Abstract We show that in a canonical model with heterogeneous entrepreneurs, financial frictions, and an imperfectly elastic supply of capital, a fall in the interest rate has an ambiguous effect on aggregate economic activity. In partial equilibrium, a lower interest rate raises aggregate investment both by relaxing financial constraints and by prompting relatively less productive entrepreneurs to invest. In general equilibrium, however, this higher demand for capital raises its price and crowds out investment by more productive entrepreneurs. When this reallocation is strong enough, a fall in the interest rate reduces aggregate output. A numerical exploration of the model suggests that this reallocation effect is quantitatively significant and—in response to persistent changes in the interest rate—stronger than the traditional balance-sheet channel. We provide evidence of the reallocation effect using U.S. firm-level data.

Interdependent water and power infrastructure model (IWPIM): A modeling approach for water and energy resource management in rural communities

The importance of the dependencies between water and power systems is more acutely perceived when challenges emerge. As both energy and water supply are limited, efficient use is a must for any sustainable future, especially in rural areas. Although important, a modeling tool that can analyze water-energy systems interdependencies in rural systems, at the architectural level highlighting the physical interconnections and synergies of these systems, is still lacking. We present a multi-agent system model that captures the features of both systems, at the same levels of fidelity and resolution, with coordinated operations and contingency components represented. Unlike other models, ours captures architectural features of both systems and technical constraints of the systems’ components, which is critical to capture physical intricacies of the interplay between systems components and shed light on the impacts of disruptions of either system on the other. This model, which includes multiple infrastructure components, shows the importance of a holistic understanding of the systems, for cooperation across systems physical boundaries and enhanced benefits at larger scales. This study looks to investigate water-power resource management in an irrigation system via the analysis of physical links and highlight strengths and vulnerabilities. The effects of water shortage, water re-allocation and load shedding are analyzed through scenarios designed to illustrate the utility of such a model. Results highlights the importance of inter-reservoir relationships for alleviating effects of disruption and unforeseen rise in energy demand. Water storage is also critical, helping to mitigate the impacts of water scarcity, and by extension, to keep the energy system unaffected. It can be a viable part of the solution to compensate for the negative impact of shortage for both resources.

Environmental regulation and employment: Evidence from China's new Environmental Protection Law

Realizing environmental protection and employment stability when facing strict environmental regulations is an essential issue of concern for many developing countries, including China. Based on a dataset of Chinese listed companies and a dataset of Chinese individual labor-force surveys, this paper uses an estimation technique pairing propensity score matching with a difference-in-differences estimator to examine the impact of the new Environmental Protection Law (EPL) on the supply and demand of labor at the micro level and the reallocation effect of interindustry labor at the macro level. The results show that the new EPL generated employment losses at the micro level. The policy reduces firms’ labor demand by lowering firms’ output and total investment expenditures and, in the process, does not stimulate firms’ innovative behavior. Moreover, implementing the new EPL reduces the wage income of workers, which in turn reduces the labor supply. Conversely, at the macro level, the new EPL promotes the transfer of labor from polluting to cleaner industries, realizes the reallocation of labor between industries, and thus promotes the transformation and upgrading of regional industrial structure.

The local tackling of global issues: a governance paradox in federal states

ABSTRACT This study focuses on a paradox of federalism. In disputed policy issues, subnational government units can initiate bottom-up policy change while the federal government remains inactive. This typically occurs in public health or climate change fields, where there might be a mismatch between the required and the effective scale of action. In such cases, subnational entities bear the costs of a politically risky action to produce a higher-level public good. Based on a study of tobacco control in 14 Swiss member states, we investigate why some subnational governments take the lead, while others adopt a wait-and-see attitude. We find a set of four configurations favourable to state activism (window of opportunity effect, reallocation effect, innovative identity effect, regionalisation effect) and four unfavourable (municipal resource burden effect, diffusion of responsibility effect, local autonomy effect, economic dependency effect). These bottom-up dynamics are crucial for understanding collaborative policy processes.

Public expenditure multipliers and informality

This paper investigates the role of informality in affecting the magnitude of the public expenditure multiplier in a panel of 142 countries, using the local projections method. We find a strong negative relationship between the degree of informality and the size of the multiplier. This result holds irrespective of the level of economic development and institutional quality and is robust to additional country characteristics such as trade and financial openness and exchange rate regime. In a two-sector New-Keynesian model, we rationalize this result by showing that fiscal shocks raise the relative price of official goods, thereby shifting demand towards the informal sector. This reallocation effect increases with the level of informality, because a larger informal sector is associated with a stronger appreciation of relative prices in response to fiscal shocks, and thus reduces the multiplier.

Dynamic effects of tourism shocks on innovation in an open-economy Schumpeterian growth model

International travel restrictions during the COVID-19 pandemic drastically reduced the number of tourists. This study explores the dynamic effects of tourism shocks in an open-economy Schumpeterian model with endogenous market structure. A tourism shock affects the economy via a reallocation effect and an employment effect. A positive tourism shock increases employment, which raises production and innovation in the short run. However, a positive tourism shock also reallocates labor from production to service for tourists, which reduces production and innovation. If leisure preference is weak, the reallocation effect dominates, and the short-run effect of positive tourism shocks on innovation is monotonically negative. If leisure preference is strong, the employment effect dominates initially, and the short-run effect of tourism shocks on innovation becomes inverted-U, which is consistent with the stylized facts that we document using cross-country data. Finally, permanent tourism shocks do not affect the steady-state innovation rate in our scale-invariant model.

The welfare effects of time reallocation: evidence from Daylight Saving Time

AbstractDaylight Saving Time (DST) is a widely adopted practice implemented by over 70 countries to align sunlight with day‐to‐day activities and reduce energy demands. However, we do not have a clear knowledge of how it affects individuals' welfare. Using a regression discontinuity combined with a difference‐in‐differences design, we find that the Spring DST transition causes a significant decline in life satisfaction. By inducing a reallocation of time, the transition into DST deteriorates sleep quality and increases time stress, which in turn affects physical and emotional health. Using an event study approach, we find that such effects persist for about six days after the DST transition. Conversely, we provide evidence that the Autumn DST transition gives rise to a significant increase in life satisfaction. Finally, using a simple cost‐benefit analysis, we discuss the potential benefits of ending DST.

Reallocating desk workers' sitting time to standing or stepping: associations with work performance.

Studies have suggested that sitting time at work may lead to underperformance but they may underestimate the benefits to desk workers' performance of reducing occupational sitting time without considering the relative effects of the specific activities replaced. To estimate differences in work performance (presenteeism, absenteeism and engagement) when occupational sitting time is reallocated to standing/stepping in desk workers. Data for middle-aged desk workers were from a Japan-wide online survey (n = 2228). Self-report proportion of occupational sitting and standing/stepping, work hours and work performance indicators, including absolute (ratings relating only to self) and relative (ratings of self, compared to others) presenteeism and absenteeism, and dimensions of work engagement, were collected. Partition and isotemporal substitution models were used to investigate the associations of occupational sitting and standing/stepping time with work performance, including their reallocation effects. In partition models, longer occupational sitting time was associated with a lower absolute presenteeism score (i.e. less productivity), lower absolute absenteeism (i.e. longer-than-expected work hours), and lower engagement. Longer occupational standing/stepping time was associated with lower absolute absenteeism and more engagement. Isotemporal substitution models showed that each hour of occupational sitting reallocated to standing/stepping was favourably associated with overall work engagement (B = 0.087; 95% confidence interval 0.051, 0.122) and its dimensions (B ranged from 0.078 to 0.092), but was not associated with presenteeism or absenteeism. These findings suggest that management support and practical initiatives to encourage desk workers to replace portions of their sitting time with standing/stepping may contribute to enhanced work engagement.

Market structure, resource allocation, and industry productivity growth: Firm-level evidence from China's steel industry

Regional monopoly limits market reforms from improving cross-firm resource allocative efficiency, but little empirical evidence is available from developing countries. This paper provides rich evidence that regional monopoly may hinder the expansion of more productive firms, using the Chinese iron and steel sector as a case. Drawing on a comprehensive panel dataset comprising 11,136 iron and steel firms in China from 1998 to 2009, we demonstrate that market reforms in China's steel industry enhance competition at the national level, but do not effectively improve resource reallocation within provinces. Despite a decline in the market share of the top 10 largest steel enterprises from 80% to 50% between 1998 and 2009, resource reallocation only contributes to 14% of industry-level total factor productivity (TFP) growth, amounting to one-sixth of the contribution from within-firm productivity growth. Furthermore, the effects of resource reallocation within provinces are significantly lower compared to those observed between provinces, suggesting that market fragmentation or frictions hinder the expansion of more productive firms within the same province. These findings underscore the importance of eliminating regional monopoly for developing countries undergoing market reforms to enhance resource allocative efficiency.

Beyond the modern productivity paradox: The effect of robotics technology on firm-level total factor productivity in China

This study aims to provide firm-level evidence on the burgeoning debate about the productivity effect of robotics technology. Taking China as an example, we find that city-level robot exposure plays a significant role in augmenting total factor productivity for firms in industries with high degrees of task replaceability. The results of the mechanism analysis further reveal that firms with substantial exposure to robotics technology are incentivized to improve their innovation performance and cultivate human capital. Conversely, there is evidence that firms characterized by low task replaceability experience a reduction in productivity as a consequence of robot exposure, potentially attributable to the effect of inter-industry resource reallocation. These findings offer empirical support for theoretical arguments regarding the productivity enhancements stemming from the development of robotics technology, while also shedding light on strategies to elevate productivity through the adoption of new technologies.

Capital Account Liberalization, Structural Change, and Female Employment

Abstract This paper studies the effects of capital account liberalization on female employment and its implications for structural change in developing countries. Using a large industry-level panel of 88 low and low-middle-income countries, we provide evidence that episodes of financial liberalization lead to large declines in female employment in tradable sectors. These declines are driven primarily by structural reallocation effects between sectors, although we also find modest changes in the gender composition of employment within sectors, depending on the sample definition. Based on this evidence, we build a stylized model of a small open economy with tradable and nontradable sectors featuring occupational segregation across genders. We use this framework to study the impact of capital inflows and the female wage penalty on female employment in tradables and the real exchange rate. Our model also implies that when the female burden of non-market home production is sufficiently large, capital inflows will disproportionately hurt female employment relative to male employment.

Do export demand shocks affect the export quality of multi‐product firms? Evidence from China

AbstractWe extend the theoretical model of Antoniades (2015, Heterogeneous Firms, quality, and trade. Journal of International Economics, 95(2), 263–273) to analyze the impact of export demand shocks on the quality of multi‐product firms. Using Chinese micro‐data, we find that positive export demand shocks significantly promote the export quality of multi‐product firms, but the impact decreases as firm productivity increases. In addition to the scale effect and the competition effect, the intensified competition caused by the expansion of export demand will induce firms to skew their export sales towards the best performing products. Our findings elucidate the importance of the resource reallocation effect in the study of trade‐induced export performance.

Measurement of labor reallocation effect in China

Improving the labor reallocation effect can promote the transformation of the driving force of economic growth and enable high-quality development. Therefore, this study constructs a growth source model from the perspective of human capital, considering labor price distortion and time-varying factor elasticity to measure the effect of labor reallocation under the crossover of provincial industries and analyze the impact of labor reallocation on employment share. The relevant findings are threefold. Aoki (2012)) The distortion of labor price is the largest in the primary industry, followed by the tertiary and secondary industries. Bai and Liu (2018)) Measuring the labor reallocation effect from the perspective of human capital allocation reveals a 3.7 % overall loss of the effect under allocation distortion compared with that under effective allocation. Bakas et al. (2017)) In terms of industrial structure adjustment, compared with the labor share under effective allocation, that of the primary industry still requires a 0.25 reduction, and that of the secondary and tertiary industries should be reduced by 0.07 and 0.18, respectively. The research results provide valuable insights for Chinese policymakers to further improve the market economy system and adjust the industrial structure to optimize resource allocation and advance economic growth.

Does equity market openness increase productivity? the dual effects of Shanghai-Hong Kong stock Connect program in China

This study investigates the dual effects of equity market openness on aggregate total factor productivity (TFP) growth and finds that gains in aggregate TFP can be driven by within-firm and reallocation effects across firms. Using a quasi-natural experiment based on China’s Shanghai-Hong Kong Stock Connect program, we find that equity market openness has a positive effect on firms’ TFP. Stock price efficiency is the mechanism underlying this improvement. Equity market openness reduces firms’ stock mispricing and improves corporate governance and investment efficiency through the feedback effect, thereby increasing TFP. Finally, we argue that equity market openness induces significant growth in capital stock and employment among high-TFP firms, driving them to achieve rapid growth and greater market share. The reallocation effect of equity market openness translates into aggregate productivity gains. This empirical study considers stock pricing as a mechanism to shed light on the dual effect of equity market openness on TFP growth.

The China trade shock and the European Union's employment

ABSTRACT This paper analyzes the effect of trade with China on the European Union's industrial and regional employment. Built on a canonical multi-country Ricardian model, we identify and estimate the employment reallocation effect across fifteen EU countries with specific discussions on three channels: import penetration, direct export, and third-market competition vis-à-vis China. Data suggest that the adverse effects stemming from the import penetration and the third-market competition quantitatively dominate the positive effect from the export channel for the effect on the EU. In particular, the third-market competition channel is a key channel for understanding the impact of China trade shock on the EU market, accounting for about 46% and 36% of the total negative effect at the industry level and region level, respectively. Moreover, the third-market competition channel particularly influenced the relative employment growth of the worst-affected industries in the European market.

Job creation or disruption? Unraveling the effects of smart city construction on corporate employment in China

Previous literature on smart city construction (SCC) has mainly focused on its economic and environmental benefits while largely overlooking its potential adverse consequences, especially on microeconomic units. Using China's SCC pilots as a quasi-natural experiment, this study examines the impact of SCC on corporate hiring decisions and finds that SCC adversely impacts corporate employment. The mechanism analysis suggests that SCC affects corporate employment through factor substitution rather than job creation by promoting digital capitalization and capital and technological factor substitution. Further analyses indicate that SCC primarily reduces the number of low-skilled and non-production employees and has a stronger impact on local private, old, and industrial firms. We also find evidence of labor reallocation effects of SCC. Overall, the results highlight the trade-off between promoting SCC and mitigating employment challenges and the role of data as a new production factor in the digital economy era, providing important policy implications for stakeholders.