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Cover IMF Working Papers
The Divergent Dynamics of Labor Market Power in Europe
Mr. Federico J. Díez, Mr. Davide Malacrino, and Mr. Ippei Shibata
We use firm-level data from 10 European countries to establish several new stylized facts about firms’ labor market power. First, we find the pervasive presence of labor market power across countries and sectors, measured by average and median markdowns above unity. Second, focusing on the dynamics, we find that weighted average markdowns have increased 1.3 percent between 2000 and 2017. However, median and unweighted average markdowns have actually decreased over the same time period, suggesting the existence of divergent paths across the markdown distribution. Third, we show that high-markdown firms tend to have a large footprint in both their product and input (labor) markets, and are most commonly listed and found among services sectors. Finally, a Melitz-Polanec decomposition of the change in weighted average markdown finds that the increase has been driven by a reallocation of resources towards high-markdown incumbents and by the extensive margin via the net entry of high-markdown firms while, in contrast, there was a decline in within-firm markdowns. Our findings highlight the importance of using granular and broad-based data for a thorough analysis of firms’ labor market power.
Keywords:
Monopsony; labor market power; markdowns; secular trends; high-markdown firm; weighted average markdown; high-markdown incumbent; markdown distribution; Labor markets; Employment; Services sector; Wages; Europe
Cover IMF Working Papers
Promoting Innovation: The Differential Impact of R&D Subsidies
Reda Cherif, Fuad Hasanov, Christoph Grimpe, and Wolfgang Sofka
We investigate the effect of R&D subsidies on firms’ innovation by ownership, industry, and firm size using German firm-level data. The impact of R&D subsidies is heterogeneous across industries for multinational corporations (MNCs) and domestic firms while it does not differ substantially by firm size. Domestic firms have a larger response in R&D spending in low-tech manufacturing, knowledge-intensive services, and technological services while the response of domestic and foreign MNCs is broadly similar and is greater in medium-tech and high-tech manufacturing. Foreign MNC subsidiaries’ response in terms of patents is greater than that of domestic MNCs in most industries.
Keywords:
Innovation; patents; research and development; R&D; subsidies; multinationals; investment; technology policy; R&D subsidy; high-tech manufacturing; subsidiaries' response;