Why firms stop introducing innovations in the great recession: aggregate demand, financial constraints and risk

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Javier Ortiz ◽  
Vicente Salas-Fumás
Keyword(s):  
Great Recession ◽  
Aggregate Demand ◽  
Content Type ◽  
Business Innovation ◽  
The Great Recession ◽  
Risk Effect ◽  
Innovation Projects ◽  
Innovation Output ◽  
The Business Cycle ◽  
Over Time

Purpose With Spanish Community Innovation Survey data, this paper tests two main hypotheses as explanation of the fall in business innovation output in the Great Recession: the aggregate demand effect (firms have lower propensity to initiate innovation projects in recession than in contraction from demand-pull and profit expectations effects) and the risk effect (a greater proportion of the initiated projects fail in recessions than in expansions). Design/methodology/approach The research methodology consists on first modelling the decision by firms to initiate innovation projects in t or not (probit model), and, second, modelling the outcomes, success or failure in t + 1 of firms that decide to initiate (Heckman model). Findings The empirical results support the two hypotheses. They also indicate that the sensitivity of the decision to initiate innovation projects to the aggregate demand is more pronounced among financially constrained firms than among unconstrained ones, while the risk effect appears to be independent of the financial situation of firms. Research limitations/implications The results of the research are limited by not being able to follow up individual innovation projects, and by not having available a more representative sample of firms where non-innovators and potential innovators are represented (now is biased toward potential innovators). Practical implications The results highlight the importance of macroeconomic stability for sustained business innovation output over time and calls managers’ attention in better management of innovation risk. Social implications The results of the paper recommend macroeconomic polies aimed at the stabilization of aggregate demand and smoothing the business cycle, as a way to contribute to the stabilization of the growth of innovation output over time. Monetary and fiscal policies that smooth the business cycle will then have significant effects in the stabilization of innovation output and, in turn, in the reduction of volatility of economic growth over time. Increasing the direct public financial aid to undertake innovation projects in recession periods will not have the same innovation output stabilization effect than the stabilization of the aggregate demand. The reason is that, as the paper points out, the innovation output of financially unconstrained firms is also affected negatively by the contraction of aggregate demand in recession periods. Originality/value This paper is the first one to investigate the differences in business innovation outputs in expansions and recessions, separating the aggregate demand and the risk effect that the organisation for economic co-operation and development identifies as main determinants of the fall in innovation output during the Great Recession. The decomposition of firms’ innovation output in the decision to initiate innovation projects and the likelihood that those initiated succeed is also new in the literature.

scholarly journals Innovations’ Success and Failure in the Business Cycle

2019 ◽  
Vol 11 (15) ◽  
pp. 4187
Author(s):  
Vicente Salas-Fumás ◽  
Javier Ortiz
Keyword(s):  
Business Cycle ◽  
Great Recession ◽  
Research Methodology ◽  
Aggregate Demand ◽  
Technological Innovations ◽  
The Great Recession ◽  
Innovation Projects ◽  
The Business Cycle

This paper examines three channels of influence of the business cycle in the propensity of firms to introduce technological innovations: Aggregate demand (firms initiate more innovation projects in expansion than in recession; risk (the probability that initiated projects fail is higher in contraction than in expansion); and obstacles to innovate (more firms perceive the obstacles to innovate as high in recessions than in expansions and the high obstacles implies lower propensity to initiate innovation projects). With Spanish CIS data we find evidence that the three channels contributed to the fall in the proportion of firms that introduce technological innovations during the Great Recession, compared with the proportion of innovators in the years of expansion. The research methodology consists on estimating a multiprobit model with the probability that firms introduce technological innovations, the probability that firms abandon ongoing innovation projects, and the probability that firms perceive the obstacles to innovate as high.

Consumption, unemployment and the Great Recession

2016 ◽  
Vol 37 (4) ◽  
pp. 724-743
Author(s):  
Joaquín Alegre ◽  
Llorenç Pou
Keyword(s):  
Business Cycle ◽  
Great Recession ◽  
Job Loss ◽  
Consumption Smoothing ◽  
Content Type ◽  
The Great Recession ◽  
Household Members ◽  
The Business Cycle ◽  
Unemployment Spells ◽  
Unemployment Persistence

Purpose – The purpose of this paper is to test whether households with members that experience job loss shocks are able to protect their previous level of consumption. The paper also tests whether consumption protection is affected when spells persist through time. Design/methodology/approach – The paper estimates an intertemporal consumption model, where households try to smooth their marginal utility over time. For that purpose it analyses Spanish household budget surveys that span a long period, 1999-2012, including the Great Recession. Unlike most consumption datasets, this microdata is designed as a panel and provides detailed information for all consumption categories as well as household members’ labour status. Findings – The paper finds that consumption smoothing is dependent on the household member facing the unemployment transition. In particular, only main breadwinner’s unemployment transitions affects consumption smoothing. It also shows that the consumption drop persists beyond the period of the job loss for ongoing spells, although it follows a decreasing pattern. Finally, the estimation results are stable over the business cycle. Practical implications – The results suggest that Spanish households are not capable of fully insuring against main breadwinner’s unemployment shocks. Further, the results show that this effect remains up to two years for ongoing unemployment spells. Thus these results highlight a welfare loss by Spanish households with unemployed members. Originality/value – The paper extends the usual analysis of job loss shocks by the main breadwinner to include the cases of both the spouse and the rest of household members, who tend to account for most unemployment. Further, it tests for unemployment persistence. Finally, it checks the sensitivity of the results to the business cycle, including the Great Recession.

scholarly journals Do family firms contribute to job stability? Evidence from the great recession

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Elena Rivo-López ◽  
Mónica Villanueva-Villar ◽  
Alberto Vaquero-García ◽  
Santiago Lago-Peñas
Keyword(s):  
Social Welfare ◽  
Unemployment Insurance ◽  
Great Recession ◽  
Family Firms ◽  
Additional Contribution ◽  
Job Stability ◽  
Content Type ◽  
The Great Recession ◽  
The Business Cycle

PurposeThe purpose of this paper is to analyze if choices made by family businesses (FBs) regarding job stability in economic recessions are different, on average, to those made by nonfamily firms. Moreover, the study tries to elucidate if this potential difference depends on the family generation that is in charge. The analysis relies upon a sample of 55,091 Spanish firms, as Spain is one of the countries that suffered the greatest impact of the 2008 Great Recession.Design/methodology/approachTo test the hypotheses, the authors built a database of 55,091 Spanish firms, 45,351 family firms and 9,740 nonfamily firms, for the period 2007–2015. Based on the socioemotional wealth (SEW) approach, this article sheds light on the question of whether family identification, binding social ties and long-term vision lead FB to behave differently from nonfamily businesses in human resource management.FindingsIn times of crisis, FBs do maintain jobs to a higher extent than nonfamily businesses, and this effect is especially intense when the first generation is in charge. According to the SEW approach, the emotional links between ownership and management make the firm more prudent when hiring during good times and when firing in times of crisis. This makes employment in FBs more stable than in private ones. This result has two positive effects. Higher job stability is an additional contribution of family firms to social welfare and happiness. Furthermore, a larger share of family firms involves stronger automatic macrostabilizers to deal with the business cycle, supplementing fiscal macrostabilizers, such as personal income tax (PIT) or unemployment insurance.Practical implicationsFamily firms maintained employment more than nonfamily firms did during the crisis. The emotional links between ownership and management and the long-term vision make the firm more prudent when hiring during good times and when firing in times of crisis. These features could make family firms more cautious in terms of hiring and firing and thus enable them to offer their employees implicit employment protection and stability. This positive effect decreases as firm age advances, due to the minor linkage between ownership and employees, in spite of maintaining identification and long-term vision.Social implicationsFrom a policy perspective, greater job stability is an additional contribution of family firms to social welfare and happiness. Hence, a larger share of family firms would involve stronger automatic macrostabilizers to deal with the business cycle, supplementing well-known fiscal macrostabilizers such as the PIT or unemployment insurance. The idea of family firms as countercyclical agents linking the micro dimension with the macro dimension becomes more interesting in the present context with the crisis generated by COVID-19.Originality/valueIn addition to contributing to the scarce literature on FB and employment in times of crisis, this paper also considers the generational effect on employment in the economic crisis context from the SEW approach. In addition, sound econometric methodology applied using an extremely large database grounded the results. In contrast with studies in the FB field that have typically focused on large listed firms (Mazzi, 2011), the study relies upon a database of privately held companies, which are more representative of FBs in civil law countries, such as Spain. The Spanish case is particularly interesting because it was one of the OECD countries shocked by the Great Recession. Finally, the authors propose family firms as countercyclical agents linking the micro dimension to the macro dimension.

scholarly journals Autonomes Fahren statt Stop and Go: Vorschläge zur effektiven Gestaltung der deutschen Kurzarbeit

2019 ◽  
Vol 68 (3) ◽  
pp. 252-260
Author(s):  
Almut Balleer ◽  
Britta Gehrke ◽  
Brigitte Hochmuth ◽  
Christian Merkl
Keyword(s):  
Labor Market ◽  
Business Cycle ◽  
Great Recession ◽  
Timely Manner ◽  
Rule Based ◽  
The Great Recession ◽  
Stop And Go ◽  
Time Work ◽  
The Business Cycle ◽  
Short Time

Abstract This article argues that short-time work stabilized employment in Germany substantially during the Great Recession in 2008/09. The labor market instrument acted in timely manner, as it was used in a rule-based fashion. In addition, discretionary extensions were effective due to their interaction with the business cycle. To ensure that short-time work will be effective in the future, this article proposes an automatic facilitation of the access to short-time work in severe recessions. This reduces the likelihood of a too extensive use at the wrong point in time as well as structural instead of cyclical interventions.

scholarly journals Unemployment and spell duration during the Great Recession in the EU

2015 ◽  
Vol 36 (2) ◽  
pp. 216-235 ◽  
Author(s):  
Carlos Gradín ◽  
Olga Cantó ◽  
Coral del Río
Keyword(s):  
Great Recession ◽  
Negative Impact ◽  
Labour Force ◽  
Future Research ◽  
Cross Sectional ◽  
Content Type ◽  
The Great Recession ◽  
Unemployment Spells ◽  
Practical Implications ◽  
The Eu

Purpose – The purpose of this paper is to analyze the different dynamic characteristics of unemployment in a selected group of European Union countries during the current Great Recession, which had unequal consequences on employment depending on the country considered. Design/methodology/approach – The paper follows Shorrocks’s proposal of a duration-sensitive measure of unemployment, and uses cross-sectional data reported by Eurostat coming from European Labour Force Surveys. Findings – The results add some evidence on the relevance of incorporating spells’ duration in measuring unemployment, finding remarkable differences in unemployment patterns in time among European countries. Research limitations/implications – In this paper unemployment is analyzed for all the labor force. Future research should investigate patterns across specific groups such as young people, women, immigrants or the low skilled. Practical implications – It is generally accepted that the negative impact of unemployment on individual welfare can be very different depending on its duration. However, conventional statistics on unemployment do not adequately capture to what extent the recession is not only increasing the incidence of unemployment but also its severity in terms of duration in time of ongoing unemployment spells. The paper shows an easy and practical way to do it in order to improve the understanding of the unemployment phenomenon, using information usually reported by statistical offices. Originality/value – First, the paper provides a tool for dynamic analysis of unemployment based on reported cross-sectional data. Second, the paper demonstrates the empirical relevance of considering spells’ duration when assessing differences in unemployment across countries or in unemployment trends. This is usually neglected or only partially addressed by most conventional measures of unemployment.

Municipal response to the Great Recession

2018 ◽  
Vol 30 (4) ◽  
pp. 384-401 ◽  
Author(s):  
Cary Christian ◽  
Jonathan Bush
Keyword(s):  
Great Recession ◽  
Rural Areas ◽  
Property Tax ◽  
Research Attention ◽  
Content Type ◽  
Service Levels ◽  
The Great Recession ◽  
Financial Condition ◽  
The Impact ◽  
Practical Implications

Purpose The purpose of this paper is to examine the impact of the Great Recession on small- to medium-sized municipalities within the states of Georgia and Florida using a newly developed set of quantitative indices. Design/methodology/approach An examination of the methods and strategies utilized by individual cities to maintain public service levels despite distressed revenues is performed. From the data, performance measures are developed and used to evaluate the efficacy of the various strategies used by the cities. Outcomes of Georgia municipalities were compared to similarly sized Florida municipalities to study how underlying differences in tax structures and economies might have affected those outcomes. Findings Georgia and Florida municipalities relied on very different strategies for surviving the recession and its aftermath. Enterprise activities were critically important in both states with transfers to or from governmental activities rationalized in various ways. While Georgia is generally anti-property tax, more than half the Georgia municipalities relied on property tax increases to survive. Municipalities were unable to count on increased intergovernmental revenues during the recession. Finally, even with a tourist activity advantage, Florida municipalities fared only marginally better during and just after the recession, and fared worse four to six years post-recession. Practical implications The measures developed in this study provide a new, customizable methodology for the evaluation of financial condition that does not require in-depth comparisons to peers. Social implications Small- and medium-sized cities, and especially those in rural areas, are worthy of targeted research to better understand their unique problems. Originality/value This research is novel in utilizing a fiscal condition methodology that can be applied to a single municipality and does not require comparisons to peers for validity. However, it represents a very intuitive and customizable tool for making comparisons between municipalities of any size when such comparisons are desired. Additionally, the focus of this study is on small- to medium-sized municipalities which generally do not receive as much research attention as larger cities.

scholarly journals Fiscal Policy and Aggregate Demand in the U.S. Before, During and Following the Great Recession

2017 ◽  
Vol 2017 (061) ◽  
Author(s):  
David Cashin ◽  
◽  
Jamie Lenney ◽  
Byron Lutz ◽  
William Peterman ◽  
...  
Keyword(s):  
Fiscal Policy ◽  
Great Recession ◽  
Aggregate Demand ◽  
The Great Recession ◽  
The U.S

A breakfast of champions: brand marketing lessons from the Great Depression

2020 ◽  
Vol 41 (4) ◽  
pp. 63-67
Author(s):  
Peter Buell Hirsch
Keyword(s):  
Great Depression ◽  
Great Recession ◽  
Design Methodology ◽  
Current Situation ◽  
Review Of The Literature ◽  
Content Type ◽  
The Great Recession ◽  
The Great Depression ◽  
Brand Marketing ◽  
Practical Implications

Purpose This paper aims to examine whether the behavior of brands during the Great Depression held lessons for the aftermath of the coronavirus pandemic. Design/methodology/approach A review of brand marketing and advertising from the 1920s and 1930s. Findings There are many learnings from the Great Depression that are instructive for today’s brand marketers dealing with COVID-19. Research limitations/implications The review of the literature is not comprehensive and the findings are subjective. Practical implications Today’s brands can learn a great deal from the 1930s such as to take advantage of opportunities and avoid mistakes in today’s difficult environment. Social implications By handling today’s challenges skillfully, brands can refresh relationships with consumers overwhelmed with choices. Originality/value Though there was some commentary on this subject following the Great Recession of 2009, there has been little written about the lessons in brand marketing in the current situation.

scholarly journals The Aggregate Implications of Regional Business Cycles

Econometrica ◽  
2019 ◽  
Vol 87 (6) ◽  
pp. 1789-1833 ◽  
Author(s):  
Martin Beraja ◽  
Erik Hurst ◽  
Juan Ospina
Keyword(s):  
Business Cycles ◽  
Great Recession ◽  
Aggregate Demand ◽  
Strong Relationship ◽  
Aggregate Data ◽  
New Keynesian ◽  
Aggregate Fluctuations ◽  
Wage Dynamics ◽  
The Great Recession ◽  
Wage Stickiness

Making inferences about aggregate business cycles from regional variation alone is difficult because of economic channels and shocks that differ between regional and aggregate economies. However, we argue that regional business cycles contain valuable information that can help discipline models of aggregate fluctuations. We begin by documenting a strong relationship across U.S. states between local employment and wage growth during the Great Recession. This relationship is much weaker in U.S. aggregates. Then, we present a methodology that combines such regional and aggregate data in order to estimate a medium‐scale New Keynesian DSGE model. We find that aggregate demand shocks were important drivers of aggregate employment during the Great Recession, but the wage stickiness necessary for them to account for the slow employment recovery and the modest fall in aggregate wages is inconsistent with the flexibility of wages we observe across U.S. states. Finally, we show that our methodology yields different conclusions about the causes of aggregate employment and wage dynamics between 2007 and 2014 than either estimating our model with aggregate data alone or performing back‐of‐the‐envelope calculations that directly extrapolate from well‐identified regional elasticities.

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