Walker

Walker joined Difficult Run as an editor in August 2013. He graduated from the University of North Texas with an MBA in Strategic Management and a BBA in Organizational Behavior and Human Resource Management. He's currently a grad student in Government at Johns Hopkins University. He has been published in SquareTwo, BYU Studies Quarterly, Dialogue, Graziadio Business Review, and Economic Affairs. He also contributed to Julie Smith's (ed.) 'As Iron Sharpens Iron: Listening to the Various Voices of Scripture'. His other online writing can be found at Worlds Without End and Times & Seasons. He lives in Denton, Texas, with his wife.

Intact Immigrant Families

April 6, 2018December 9, 2016 by Walker

Take a hard look at the graph above. I’ve discussed marriage and family structure a lot here at Difficult Run. The social science is pretty clear: marriage matters for children’s well-being. Concerns over immigration often revolve around culture: do immigrants assimilate well? What kind of foreign cultural elements are they bringing with them? I’ve addressed cultural diversity before. And according to the data above, intact families are yet another positive contribution made by immigrants. According to researcher Nicholas Zill,

Indeed, the latest data from the Census Bureau on the family living arrangements of U.S. children show that 75 percent of immigrant children live in married-couple families, compared to 61 percent of children of U.S.-born parents. The figure is the same for immigrant children who were born in this country as for those who were foreign-born.⁴ Children of immigrants are less likely than native children to be living with divorced, separated, or never-married mothers: 14 percent lived with their mothers only, compared to 26 percent of children of U.S.-born parents.

Furthermore, immigrant parents stay together despite the fact that many are living below or close to the poverty line. Half of U.S.-born children of recent immigrants are in families that are poor or near poor, with nearly a quarter living in families below the poverty line. The circumstances of foreign-born immigrant children are worse: 57 percent are in families that are poor or near poor, with 29 percent living in families below poverty. The comparable figures for native children are 38 percent in poor or near-poor families, with 18 percent below the poverty line.

Zill concludes that “we should…recognize the strong work ethic and robust family values that many immigrant families exemplify. Far from undermining our traditions, they may be showing us the way to “make America great again.””[ref]Especially since family structure matters more in rich countries.[/ref]

Minimum Wage and Employment: Is the Evidence “Well-Established”?

March 29, 2018December 9, 2016 by Walker

GMU economist Don Boudreaux wrote an open letter to Bloomberg‘s Barry Ritholtz on his blog Cafe Hayek. It was in response to Ritholtz’s recent article on the minimum wage, which claims that “modest increases in minimum wages don’t lead to job losses.” This, in Ritholtz’s view, is “well-established” in the literature. Ritholtz certainly has studies that can backup his position. For example, a brand new study by the Council of Economic Advisers found “that employment in the [generally low-wage] leisure and hospitality industry follows virtually identical trends in states that did and did not raise their minimum wage.” It goes on to note that “[t]his finding is consistent with a well-established empirical literature in which minimum wage increases are often found to have no discernible impact on employment (Card and Krueger 2016, Belman and Wolfson 2014).”[ref]The report has been criticized by some economists, being described as “substantially to the left of where the economics mainstream has been for at least six decades.”[/ref] But Boudreaux points out that the empirical literature does find modest negative impacts on low-wage employment. He writes,

Here’s a list only of some of the more prominent, recent scholarly empirical studies whose authors that find that even modest hikes in minimum wages destroy some jobs:

– Jeffrey Clemens and Michael Wither, “The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers” (2014) (finding that “minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point”);[ref]The 2016 version can be found here.[/ref]

– Jeffrey Clemens, “The Minimum Wage and the Great Recession: Evidence from the Current Population Survey” (2015) (finding that minimum-wage increases during the Great Recession “reduced employment among individuals ages 16 to 30 with less than a high school education by 5.6 percentage points”);

– Jonathan Meer and Jeremy West, “Effects of the Minimum Wage on Employment Dynamics” (2013) (finding that “the minimum wage reduces job growth over a period of several years. These effects are most pronounced for younger workers and in industries with a higher proportion of low-wage workers”);

– David Neumark, J.M. Ian Salas, and William Wascher, “More on recent evidence on the effects of minimum wages in the United States” (2014) (finding that “the best evidence still points to job loss from minimum wages for very low-skilled workers – in particular, for teens”);

– Yusuf Soner Baskaya and Yona Rubinstein, “Using Federal Minimum Wages to Identify the Impact of Minimum Wages on Employment and Earnings across the U.S. States” (2012) (finding that “[m]inimum wage increases boost teenage wage rates and reduce teenage employment”).

Indeed, you can read a whole book on the matter by David Neumark and William Wascher, Minimum Wages (2008), published by the MIT Press, that concludes that minimum wages do indeed destroy some jobs.

You can dispute the accuracy of all of the above findings, but you cannot dispute that these findings, along with many others that reach similar conclusions, are part of the scholarly record – a record that belies your assertion that it is “well-established” that modest minimum-wage hikes destroy no jobs.

Interestingly enough, Ritholtz cites a University of Washington study on the Seattle minimum wage law and asserts that it “found little or no evidence of job losses[.]” Yet, the study quite clearly states that the minimum wage law led to “a 1.2 percentage point decrease in the employment rate for these low-wage workers. That is, we conclude that Seattle experienced improving employment for low-wage workers, but the minimum wage law somewhat held employment back from what it would have been in the absence of the law” (pg. 12). It later summarizes,

While the intended effect of the Minimum Wage Ordinance (i.e., raising low-wage workers’ wages) appears to have been successful, there appears to have been some negative impacts on these worker’s rates of employment and hours worked. As noted previously, the rate of employment of these workers increased by 2.6 percentage points. However, the comparison regions all experienced even better employment rate increases (3.8% for Synthetic Seattle, 3.9% for Synthetic Seattle Excluding King County, 3.5% for SKP and 2.9% for King County Excluding Seattle and SeaTac). Thus, it appears that the Minimum Wage Ordinance modestly held back Seattle’s employment of low-wage workers relative to the level we could have expected (pg. 22).

Image result for you're fired gif arnold

What about hours worked?

Hours worked shows a similar pattern. Among workers earning less than $11 per hour at baseline in Seattle, hours worked increased by 12.2 relative to business as usual. So, again, Seattle’s employment situation for low-wage workers improved after the Minimum Wage Ordinance was passed. Hours worked increased, however, by more in the comparison regions (16.4 for Synthetic Seattle, 13.0 for Synthetic Seattle Excluding King County, 21.5 for SKP and 22.5 for King County Excluding Seattle and SeaTac). Thus, on balance, it appears that the Minimum Wage Ordinance modestly lowered hours worked (e.g., 4.1 hours per quarter relative to Synthetic Seattle, or 19 minutes per week) (pg.22).

The study concludes that “[t]he effects of disemployment appear to be roughly offsetting the gain in hourly wage rates, leaving the earnings for the average low-wage worker unchanged.” In short, “for those who kept their job, the Ordinance appears to have improved wages and earnings, but decreased their likelihood of being employed in Seattle relative other parts of the state of Washington” (pg. 33).

I’ve written about the current state of minimum wage research before. I think there are good reasons to be skeptical about its ability to truly help reduce poverty. And as previous research has noted, the debate is more “about the trade-off between good jobs with higher wages and more job stability versus easier access to jobs.”

Let’s try to keep the debate on track.

McKinsey & Co.: Five Pillars of Growth

December 29, 2016December 8, 2016 by Walker

The McKinsey Global Institute has a new briefing paper entitled “The US Economy: An Agenda for Inclusive Growth.” The paper seeks ways to help America “regain its dynamism and restore the sense that everyone is advancing together.” The paper lists “five areas where targeted investment and policy action could create substantial economic impact.” This impact would include a rise in “GDP growth to 3 or even 3.5 percent.” These include:

Digitization: “The US economy is rapidly digitizing, but its progress is highly uneven. Focusing on the gap between lagging sectors and those on the digital frontier is a key part of the productivity puzzle. Government can play a role by promoting digital investment, digitizing public services and procurement, clarifying regulatory standards to encourage digital innovation, and taking a nimble and experimental regulatory approach to keep pace with technological change.”
Globalization and trade: “The current debate around trade misses the point that globalization is becoming more digital—a shift that plays to US strengths. Today, less than 1 percent of US firms sell abroad. There are ways to expand participation by helping small businesses export on global e-commerce platforms and playing a matchmaking role to connect individual cities and smaller companies with foreign investors. But it is also time to confront the needs of communities that have experienced trade shocks. The workers who are caught up in industry transitions need more than retraining; their communities need reinvestment.”
America’s cities: “Eighty percent of the US population lives in cities or the surrounding metro areas. But investment in urban transport infrastructure has not kept up with their needs, creating congestion that harms both productivity and the quality of life. A shortage of affordable housing and commercial space has worsened the squeeze on households and small businesses. Addressing urban issues would improve mobility, create new investment opportunities, and benefit companies. The overall economy would stand to gain, since cities are the engines of productivity.”
Skills: “The United States needs to build a more dynamic and efficient labor market. Colleges and universities have to adapt and address the growing cost burdens. Additionally, we could make occupational licenses more portable, create more short-term training and credential pathways, expand “earn while you learn” apprenticeships, and make better use of online talent platforms to improve matching and design quicker, more effective education pathways.”
A resource revolution: “Competition among fuel sources and efficiency improvements are combining to produce an unheralded energy revolution. Technology innovations are driving increased efficiency both in demand and supply, and renewables are becoming more price competitive. America’s widely diversified energy portfolio has hugely benefited the economy. The most important thing the ongoing resource revolution needs is room to play out. Technology is moving quickly, and a responsive regulatory approach would speed the allocation of capital to the most promising opportunities. The primary policy agenda here involves reducing friction and market distortions.”

Definitely a list worth considering.

World Opinions on Globalization

December 10, 2016December 8, 2016 by Walker

The Economist reports on a new YouGov poll that surveyed “19 countries to gauge people’s attitudes towards immigration, trade and globalisation. The data reveal a split between emerging markets and the West, which is increasingly turning its back on globalisation. Beset by stagnant wage growth, less than half of respondents in America, Britain and France believe that globalisation is a “force for good” in the world. Westerners also say the world is getting worse. Even Americans, generally an optimistic lot, are feeling blue: just 11% believe the world has improved in the past year.”

The chart above demonstrates that “countries with the fastest-growing economies tend to be more positive about globalisation. The French, Australians, Norwegians and Americans tend to oppose the idea of foreigners buying indigenous companies. But most Asians do not see a problem. Few in Hong Kong and Singapore would argue that their city-states should be self-sufficient, whereas most respondents in Indonesia, Thailand, India, the Philippines and Malaysia reckon that their countries shouldn’t have to rely on imports.” But “nationalism is especially pronounced in France, the cradle of liberty. Some 52% of the French now believe that their economy should not have to rely on imports, and just 13% reckon that immigration has a positive effect on their country. France is divided as to whether or not multiculturalism is something to be embraced. Such findings will be music to the ears of Marine Le Pen, the leader of the National Front, France’s nationalist, Eurosceptic party. Current (and admittedly early) polling has her tied for first place in the 2017 French presidential race.” There may even be some comfort for those concerned about growing anti-democratic sentiments. For one, these sentiments may not be as pronounced as often reported. Furthermore, the YouGov poll finds hope in younger generations:[ref]Though there is likely need for caution regarding this conclusion as well.[/ref]

While millennials tend to hold more left-wing economic views, they are far keener on the idea of globalisation, broadly conceived, thanks to their more positive attitudes towards multiculturalism. In America, 46% of those aged 18-34 think that immigrants had a positive effect on their country, compared with just 35% of those aged 55 and over. In Britain the generational gap is even bigger: 53% and 22%, respectively. And millennials were more optimistic in every country surveyed, save for Indonesia.

Let’s hope their left-wing economic views don’t devolve into anti-trade populism.

The Myth of the Rational Voter: Lecture by Bryan Caplan

April 11, 2018December 7, 2016 by Walker

This is part of the DR Book Collection.

Following the results of November’s presidential election, I decided to read up on the social science on voter rationality. The first was Ilya Somin’s Democracy and Political Ignorance. The second was economist Bryan Caplan’s Princeton-published The Myth of the Rational Voter: Why Democracies Choose Bad Policies. Caplan argues that voters are not merely ignorant about economic policy; they are systematically biased in a way that puts them at complete odds with the economic profession. These biases include:

Anti-market bias: the public drastically underestimates the benefits of markets.
Anti-foreign bias: the public drastically underestimates the benefits of interactions with foreigners.
Make-work bias: the public equates prosperity with employment rather than production.
Pessimistic bias: the public is overly prone to think economic conditions are worse than they are.

For me, the evidence from surveys regarding the opinions of the public vs. economists was the most illuminating. People overwhelmingly support protectionism. Not only that, “solid majorities of noneconomists think it should be government’s responsibility to “keep prices under control”” (pg. 51). Other examples include:

Far fewer economists are concerned about “excessive taxation” than the public.[ref]Most academic economists are moderate Democrats: “Controlling for individuals’ party identification and ideology makes the lay-expert belief gap a little larger. Ideologically moderate, politically independent economists are totally at odds with ideologically moderate, politically independent noneconomists. How can this be? Economics only looks conservative compared to other social sciences, like sociology, where leftism reigns supreme. Compared to the general public, the typical economist is left of center. Furthermore, contrary to critics of the economics profession, economists do not reliably hold right-wing positions. They accept a mix of “far right” and “far left” views. Economists are more optimistic than very conservative Republicans about downsizing or excessive profits—and more optimistic about immigration and welfare than very liberal Democrats” (pg. 82).[/ref]
Far fewer economists are concerned about the deficit being “too high” than the public.
Few economists think foreign aid spending is “too high”, while a large number of the public does (foreign aid actually takes up about 1% of the federal budget).
Few economists think their are “too many immigrants”, while this is a concern for the public.

The list goes on. You can see a lecture by Caplan on his book below.

New McKinsey Report on Global Migration

April 6, 2018December 7, 2016 by Walker

Now for a topic I never write about: immigration.

Related image

The McKinsey Global Institute has a new report on global migration and the findings are worth reviewing:

Moving more labor to higher-productivity settings boosts global GDP. Migrants of all skill levels contribute to this effect, whether through innovation and entrepreneurship or through freeing up natives for higher-value work. In fact, migrants make up just 3.4 percent of the world’s population, but MGI’s research finds that they contribute nearly 10 percent of global GDP. They contributed roughly $6.7 trillion to global GDP in 2015—some $3 trillion more than they would have produced in their origin countries. Developed nations realize more than 90 percent of this effect.

…Extensive academic evidence shows that immigration does not harm native employment or wages, although there can be short-term negative effects if there is a large inflow of migrants to a small region, if migrants are close substitutes for native workers, or if the destination economy is experiencing a downturn.

Realizing the benefits of immigration hinges on how well new arrivals are integrated into their destination country’s labor market and into society.[ref]Protective labor laws don’t help.[/ref] Today immigrants tend to earn 20 to 30 percent less than native-born workers. But if countries narrow that wage gap to just 5 to 10 percent by integrating immigrants more effectively across various aspects of education, housing, health, and community engagement, they could generate an additional boost of $800 billion to $1 trillion to worldwide economic output annually. This is a relatively conservative goal, but it can nevertheless produce broader positive effects, including lower poverty rates and higher overall productivity in destination economies.

Check it out.

No Losers

April 11, 2018December 6, 2016 by Walker

This is part of the General Conference Odyssey.

In the first half of 2010, Peter Drucker’s 1973 book Management: Task, Responsibilities, Practices sold over 300,000 copies in Japan. When compared to the 100,000 copies sold in the previous 26 years, the leap is pretty remarkable. “The unlikely catalyst for this cultish enthusiasm,” explains The Economist, “is a fictional teenager called Minami. Like many high-school girls in Japan, she becomes the gofer for the baseball team’s male coach. Unlike many of her compatriots, she is the kind of girl, as the book says, who leaps before she looks. Horrified by the team’s lack of ambition, she sets it the goal of reaching the high-school championships. She stumbles upon Drucker’s 1973 book, and it helps her turn the rabble into a team.” Minami is the main character of a popular 2009 Japanese novel entitled (in English) What If the Manageress of a High School Baseball Team read Drucker’s “Management”?, or Moshidora for short. A manga adaptation was launched in late 2010, while the film adaptation was released in 2011. I have yet to track down a copy of the novel or manga, though my, shall we say, less-than-stellar Japanese would be of no help when reading them. Furthermore, the movie wasn’t exactly Best Foreign Language Film material. However, the 10-episode anime TV series that aired in 2011 was quite good and actually captured what I love about management, management literature, and Drucker’s work in particular.

Episode 5 (“Minami Abandons Traditional High School Baseball”) stood out the most to me because it was able to demonstrate the principle of growth, the spirit of which can be applied personally from business to sports to spirituality. After Minami discovers the concept of “innovation” in Episode 4 and encourages the team’s coach to revolutionize high school baseball by means of it,[ref]I love Minami’s “a-ha” moments. The abstract scenery that Minami is placed within along with the accompanying music is an awesome portrayal of insight and inspiration.[/ref] Coach Makoto implements a “no bunt, no ball” strategy: in order to reduce the pitcher’s time on the field and increase defense, the pitcher throws only strikes. Sacrifice bunts are also eliminated, upping the chance of runs without taking an out. The team tests their new strategy at an exhibition game against a college team (whose players are on the national level). After the college team gains a 10-run lead, the strategy looks as if it is a failure. However, Minami realizes that her team’s pitch count and number of field mistakes are decreasing with each inning (they had cut it in half by the time Minami noticed). During the final inning, Minami’s team prevents their rival from scoring and gets their only two runs of the game. Even though the score was 34-2 (and ended early due to the mercy rule), Minami and her team were thrilled. Their strategy had resulted in significant growth and development, even within the course of one game. On the surface, the strategy looked like a failure. But in the long run, it took the team to the National Championship.

I was reminded of this during Marvin J. Ashton’s talk “Who’s Losing?“:

One warm evening during the past summer months Sister Ashton and I enjoyed a professional baseball game. During the early part of the competition our attention was diverted from the action by a late arriver. As he walked by, he spotted me and asked, “Who’s losing?” I responded with, “Neither one.” Following my answer, I noticed that he glanced at the right-field scoreboard, saw the game wasn’t tied, and walked on, undoubtedly wondering about me.

Seconds after he made his way to a distant seat, Sister Ashton said, “He doesn’t know you very well, does he?” “What makes you say that?” I replied. She responded with, “If he did, he would know you don’t believe anyone is losing. Some are ahead and some are behind, but no one is losing. Isn’t that right?” I smiled in approval with a warm feeling inside.

All of us, young and old, will do well to realize that attitude is more important than the score. Desire is more important than the score. Momentum is more important than the score. The direction in which we are moving is more important than position or place.

He goes on to remind us that we are “not losing if we are moving in the right direction.” He encourages us to have “good cheer, optimism, and courage if we are to move onward and upward.” He says we “need men with the courage to put proper attitudes into action. We need more men today with patience and purposeful endurance.” We need “resilience, the ability to cope with change. Adaptability cushions the impact of change or disappointment. Love can be a great shock absorber as we adjust in trial and tragedy.” He states, “Proper self-confidence lets every man know there is a spark of divinity within waiting to be nurtured in meaningful growth. Proper attitude enables us to live in harmony with our potentials.” He also lets us know that “[p]roper attitude toward self is an eternal pursuit. Positive personal attitude will insist that we deliver our best, even though less might seem adequate for the moment. Proper attitude demands we be realistic—even tough with ourselves and self-disciplining.”

All of this is about progress; it’s a process, a transformation. I’m reminded of something Nathaniel wrote years ago:

The reality is this: if we are sincere in our quest to be disciples of God, we will lose a taste for things that are not Celestial. It’s unnecessary and unhelpful to lash ourselves into a frenzy to try and vault to perfection in one leap. We lack the sensitivity to even know what that means. It would be like trying to waltz without proprioception: futile, grotesque, and ultimately expressing a lack of faith and a lack of humility. We are telling God: “You are not working in me fast enough.”

Let God work on you. Embrace the process and take notice of the small wins throughout your progression.

Revitalizing Liberalism

December 5, 2016 by Walker

“[M]aking the case for liberalism is a Sisyphean task,” writes Will Wilkinson at the Niskanen Center. “If the old truths are not updated for each new age, they will slip from our grasp and lose our allegiance. The terms in which those truths have been couched will become hollow, potted mottoes, will fail to galvanize, inspire, and move us. The old truths will remain truths, but they’ll be dismissed and neglected as mere dogma, noise. And the liberal, open society will again face a crisis of faith…Intellectual and moral infrastructure depreciates. There are ongoing costs of maintenance. You can’t successfully defend liberalism once and for all, just like you can’t install a sewage system and flush happily ever after without giving it another thought.” The fading of liberal ideas is captured in the recent work of political scientist Yascha Mounk, as reported last week in The New York Times.

“If we fail to constantly refurbish the case for and commitment to liberalism,” Wilkinson continues,

reinforcing it against the specific damage of the age, our institutions will drift toward generalized opportunistic corruption and declining popular legitimacy. Our culture will drift toward defensive avidity and mutual distrust. Our politics will drift toward primal zero-sum tribal conflict. All of which creates a fat political opening for would-be despots and ends-justifies-the-means zealots. Fascism and communism arose in liberal Europe because the liberal elites got complacent, nobody fixed the pipes, and then awful people with awful ideas rose to power promising to fix damage—and then caused massively more damage.

He concludes,

The fact that liberalism has become rote is central to our problem. Academic left-liberalism is doggedly utopian—and stale. Democratic Party liberalism is incoherent—and stale. Orthodox libertarianism is dogmatically blinkered—and stale. The “classical liberalism” of conservative-libertarian fusionism is phony—and stale. Each of our legacy liberalisms is, in its own way, corrupt. It’s all part of our pitted, pocked, cracked and creaking liberal cultural infrastructure. It doesn’t help to replace rotten wood with rotten wood, rusty pipe with rusty pipe…An effective defense of the open society must begin with an empirically-minded account of its complex inner workings and its surpassing value. Liberal political order is humanity’s greatest achievement. That may sound like hype, but it’s the cold, hard truth. The liberal state, and the global traffic of goods, people, and ideas that it has enabled has led to the greatest era of peace in history, to new horizons of practical knowledge, health, wealth, longevity, and equality, and massive decline in desperate poverty and needless suffering. It’s clearer than ever that the multicultural, liberal-democratic, capitalist welfare state is far-and-away the best humanity has ever done. But people don’t know this! We are dangerously oblivious to the nature of our freedom and good fortune, and seem poised to snatch defeat from the jaws of victory.

I can only hope that some of my posts here at Difficult Run have contributed to this project of making liberalism great again.

Management Quality Matters

March 29, 2018December 2, 2016 by Walker

Building on the work of Stanford economist Nicholas Bloom and the World Management Survey, new research suggests that management quality matters for firm adaptability to adverse competitive shocks. The researchers explain,

Studying the way that corporations adjust to competitive shocks is difficult, and isolating the role of management even more so. New technology directly affects the productivity of firms, but it simultaneously transforms the competitive environment to which management needs to adapt. It is difficult to disentangle the role of external competitive forces from the direct effects of technological change. Policy shocks provide better opportunities to isolate the firm response because they do not directly emanate from an underlying process that is shaping the productivity of a firm. Recent research has therefore focused on policy shocks, such as a new trade agreement, unexpected exchange-rate shocks, or changes to the minimum wage.

Emerging markets might provide a better setting for a test of the relevance of management practice, because these markets have firms which differ more widely in their governance and management quality. Our recent research focuses on the productivity response of Chinese firms to external labour cost shocks (Hau et al. 2016). Many industries in China feature a large numbers of state-owned firms (SOEs), private Chinese firms, and foreign firms. Each have very different management practices…Chinese firms have undergone regular large labour cost shocks because of large revisions to the minimum wage set at the local level. In the seven-year period from 2002 to 2008 alone, there were more than 17,000 minimum wage increases in China’s 2,852 counties and cities…For firms with many workers at, or near, the minimum wage, these minimum wage increases often had a dramatic impact on average labour cost.

What were the firm responses to the 20% increase in the minimum wage?

The incremental productivity increase of SOEs [state-owned firms] was small and statistically insignificant (indicated by the vertical line representing a 95% confidence interval around the mean effect). Private firms show a statistically significant productivity response if their initial productivity is low, whereas foreign firms show by far the largest productivity increase in the year of the minimum wage increase. The point estimate of incremental TFP growth, just under 10%, is economically large and corresponds to almost a full year of trend growth. External competitive shocks therefore trigger large productivity improvements in some firms, but not in others. Ownership structure accounts for a large proportion of this variation.

Drawing on previous research, the authors draw up three dimensions to measure the quality of firm management:

Monitoring practices: The collection and processing of production information;
Target-setting practices: The ability to set coherent, binding, short-term and long-term targets; and
Incentive practices: Merit-based pay, promotion, hiring, and firing.

Their findings indicate that larger firms–especially foreign-owned–are better managed, while state-owned were the least well managed. The graph below “illustrates that the positive productivity response to the labour cost shock tends to be, ceteris paribus, larger for firms with a higher predicted management quality.”

“The horizontal axis shows the triple interaction between the impact function IF(ws/wmin), the (log) minimum wage increase and the predicted management score (Mgmt_Score). To keep the figure simple, we plotted only those 29,998 firm-year observations for which the minimum wage increase was larger than 20%. For the same minimum wage exposure (or value of the impact function) and the same large minimum wage increase, a firm observation with a low predicted management score will tend to be on the left. Those with a high predicted management score will be to the right.”

The “evidence indicates better-managed firms adapt better to adverse competitive shocks, and suggests that management quality matters for this adaptability.” In other words, management matters.

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