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Up Front

Hutchins Roundup: Productivity, banks’ reporting, and more

Anna Malinovskaya and Louise Sheiner

Studies in this week’s Hutchins Roundup find that surges in firm entry increase industry productivity growth, quarterly reporting requirements raise banks’ asset quality, and more.

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Surges in firm entry contribute to wider within-industry productivity dispersion and growth

There are several hypotheses for why labor productivity varies so much among firms in the same industry. Using a new economy-wide, firm-level dataset, Lucia Foster and Cheryl Grim of Census Bureau, John Haltiwanger of the University of Maryland and Zoltan Wolf of Westat find that a surge of new entrants to an industry before 2000 yielded an immediate increase in productivity dispersion followed, after a lag, by an increase in the pace of productivity growth and a subsequent narrowing of the dispersion. This pattern is particularly pronounced in the high-tech sector. The authors also note that the period after 2000 was marked by a decline in new entrants though there was no narrowing of productivity dispersion within industries.

Quarterly financial reporting improves European banks’ asset quality

Banks in the U.S. have been mandated to provide financial reports on a quarterly basis since the 1970s, but quarterly reporting was not required in Europe for much of this time. Using data on reporting practices and asset quality of over 400 banks from 32 European countries during 2000–2014, Karthik Balakrishnan and Aytekin Ertan from the London Business School conclude that quarterly financial reporting improves banks’ loan portfolio quality. In particular, banks’ nonperforming loans decrease by 11 percent after they switch to quarterly financial reporting. These findings suggest that quarterly reporting standards may discipline banks by limiting excessive risk-taking.

High-paying firms move workers to the top of the earnings distribution and keep them there

Using U.S. earnings data for 2004-2013, John Abowd of the Census Bureau, Kevin McKinney of UCLA and Nellie Zhao of Cornell find that the difference between working at a bottom- or middle-paying firm is relatively small, but the gains from working at a top-paying firm are large. Furthermore, workers at high-paying firms have a higher probability of upward mobility in the next year, they find.

Chart of the week: Inflation recently has exceeded wage growth for many

ES_20170315_HutchinsChartofWeek

 

Quote of the week: “[T]his seemed like a good time to remind Americans that our objective is 2 percent inflation,” says Fed Chair Janet Yellen.

“Inflation is not always going to be at 2 percent. It’s like all economic variables, it fluctuates. Sometimes it’s going to be below 2 percent. Sometimes, it’s going to be above 2 percent. We’ve had a long period in which inflation has run under 2 percent. As we move back to 2 percent, which is where we are heading, there will be some times when it’s above 2 percent as well. And it’s a reminder, 2 percent is not a ceiling on inflation. It’s a target. It’s where we always want inflation to be heading.”

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