Firms and Productivity

A country’s national income broadly depends on the quantity and quality of workers and capital. But how well these factors are managed within and between firms may be a key determinant of a country’s productivity and its GDP. Although social scientists have long studied the role of management practices in shaping business performance, their primary tool has been individual case studies. While useful for theory-building, such qualitative work is hard to scale and quantify. We present a large, scalable dataset measuring structured management practices at the business level across multiple countries. We measure practices related to performance monitoring, target-setting, and human resources. We document a set of key stylized facts, which we label “the international empirics of management”. In all countries, firms with more structured practices tend to also have superior economic performance: they are larger in scale, are more profitable, have higher labor productivity and are more likely to export. This consistency was not obvious ex-ante, and being able to quantify these relationships is valuable. We also document significant variation in practices across and within countries, which is important in explaining differences in the wealth of nations. The positive relationship between firm size and structured management practices is stronger in countries with more open and free markets, suggesting that stronger competition may allow firms with more structured management practices to grow larger, thereby potentially raising aggregate national income.

This paper examines the correlation between cognitive ability and firm creation. Drawing on administrative college admissions data and firm registration records in China, we investigate who had created firms by their mid-30s. We find a clear pattern of entrepreneurial reluctance: Given the same backgrounds, individuals with higher college entrance exam scores are less likely to create firms. Through an exploration of firm performance, alternative career trajectories, and variations across regions, we propose an explanation: The ability represented by exam scores is useful across occupations, yet higher-scoring individuals are attracted to waged jobs, particularly those of the state sector.

A growing body of literature explores the effect of higher education on the urban–rural divide in China. Despite an increasing number of rural students gaining access to college, little is known about their performance in college or their job prospects after graduation. Using nationally representative data from over 40,000 urban and rural college students, we examine rural students’ college performance and estimate the impact of rural status on students’ first job wages in comparison to their urban peers. Our results indicate that once accepted into college, rural students perform equally as well, if not better, than their urban counterparts. Additionally, we discovered that rural students earn a 6.2 per cent wage premium compared to their urban counterparts in their first job after graduation. Our findings suggest the importance of expanding access to higher education for rural students, as it appears to serve as an equalizer between urban and rural students despite their significantly different backgrounds.

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.

Significance
One fundamental issue in economic, psychological, and social sciences is whether and how much income truly brings happiness. This paper draws on twins data to examine whether income indeed affects happiness and estimates the size of such an effect. We control for unobserved genetic factors that may impact both income and happiness using identical twins, address measurement error bias, and conduct a series of robustness checks. Income has a much larger effect than previous estimates: doubling income boosts the four-scale happiness value by 0.26 scales or 0.37 SDs. Heterogeneity analyses suggest that income matters most for males and the middle-aged. Our findings emphasize the importance of income maintenance for individuals’ well-being.

Abstract
We estimate the causal effect of income on happiness using a unique dataset of Chinese twins. This allows us to address omitted variable bias and measurement errors. Our findings show that individual income has a large positive effect on happiness, with a doubling of income resulting in an increase of 0.26 scales or 0.37 SDs in the four-scale happiness measure. We also find that income matters most for males and the middle-aged. Our results highlight the importance of accounting for various biases when studying the relationship between socioeconomic status and subjective well-being.

We link industrial clusters, regional productivity and resource reallocation efficiency with geographical and sectoral disaggregated data. Based on a county-industry level panel from 1998 to 2007 in China, we find that industrial clusters significantly increase local industries' productivity by lifting the average firm productivity and reallocating resources from less to more productive firms. Moreover, we find major mechanisms through which resource reallocation is improved within clusters: (i) clusters are associated with a higher firm turnover with increased entry and exit rates simultaneously; and (ii) within clusters' environment, the dispersion of individual firm's markup is significantly reduced, indicating intensified local competition within clusters. Such results suggest that industrial clusters in China help improve regional productivity and resource allocation efficiency with intensified competition and accelerated firm dynamics. The identification issues are carefully addressed by two-stage estimations with instrumental variables and other robustness checks.

In each of the three waves of the Section 301 tariffs on Chinese imports, the US government exempted some products on the originally proposed list from additional duties. Using these exempted products as the counterfactual, we identify modest but heterogeneous impacts of the tariffs on the value of US imports from China. We find a complete pass-through for the first and second waves of tariffs. However, unlike in previous studies, we estimate a very limited tariff pass-through of the third wave of tariffs. Finally, we find little import diversion for the US and significant export diversion for China.

After nearly two decades of rising wages for those in the unskilled sectors of China's economy, in the mid-2010s employment and wages in China began to experience new polarizing trends. Using data from the National Bureau of Statistics of China, this paper examines trends in multiple sectors and subeconomies of China, revealing the substantial rise of employment in informal, low-skilled services as well as the steady decline of wage growth in the informal subeconomy. At the same time, we find that although employment growth in the formal subeconomy is relatively moderate, wage growth in high-skilled services is steadily rising. These two trends pose a challenge for China, presenting a new and uncertain period of economic change.

This paper estimates the labor market impacts of parenthood in China. We find that becoming a mother has negative impacts on women's labor outcomes. But the impacts appear to recover sooner than what has been found in other countries. A decomposition exercise suggests that parenthood plays a limited role in explaining the large gender inequality in China's labor market. We document a form of intergenerational arrangement that is prevalent among Chinese families: Upon the arrival of a child, grandmothers substantially reduce market labor supply and provide much of the childcare. Grandparents’ help with childcare likely plays an important role in alleviating the motherhood effect. Suggestive evidence indicates that in return, grandparents who help with childcare receive more intra-family transfers and report higher subjective wellbeing. We further show that the motherhood effect, though relatively small, has increased substantially over the past decades. The rising gender gap in the labor market, the declining state sector that historically provides more flexible accommodations for working mothers, and the abolishment of the one-child policy all suggest a rising burden of motherhood on labor market outcomes.

This paper empirically investigates the labor market effects of China’s 2007 VAT reform, which significantly reduced the tax cost of capital investment. Employing city-by-year variation in the reform, we demonstrate that the tax cuts increased the earnings of skilled workers and left the earnings of the unskilled workers unaffected. Moreover, we find limited impacts of the reform on employment for both skill groups. These results suggest that the tax incentives increased the relative demand for skills, thus resulting in a higher income inequality between skilled and unskilled workers.

China has witnessed rapid increases in the skill premium over the last few decades. In this paper, we study the short-run effect of capital goods imports on skill premium in China. The surge in capital goods imports, which embody advanced technology, can explain the rising demand for skill in China. We exploit regional variations in capital goods import exposure stemming from initial differences in import structure and instrument for the capital goods import growth using exchange rate movements. A city at the 75th percentile of the distribution of capital goods imports growth has a higher skill premium by 5 percentage points (0.38 standard deviation) over the one at the 25th percentile. To explore the underlying mechanism, we provide firm-level evidence and show that imported capital goods are skill-complementary.

China’s college admission increased by five times between 1998 and 2009. While the college premium for young workers declined, that for senior workers increased in this period. In our general equilibrium model, a rising demand for skills (education and experience) explains both trends. A demand shock leads to an expansion in the elastic college enrollment, depressing the college premium for young workers. With an inelastic supply, experienced college graduates continue to enjoy a rising premium. Despite the low immediate premium, young individuals continue to flood into colleges because they foresee high lifetime returns. Simulations match empirical results well.

We estimate the wage premium associated with having a cadre parent in China using a recent survey of college graduates carried out by the authors. The wage premium of having a cadre parent is 15%, and this premium cannot be explained by other observables such as college entrance exam scores, quality of colleges and majors, a full set of college human capital attributes, and job characteristics. These results suggest that the remaining premium could be the true wage premium of having a cadre parent.