The Euro and Firm Restructuring

by

Matteo Bugamelli,Fabiano Schivardi and Roberta Zizza

Discussion of

Timely study

• 10 years after Euro time to look for real effects. Important to do so with an expanding Euro Area

• Key issue: does monetary integration foster labour reallocation (more than restructuring)?

• Does it more so in price-sensitive and low-skill intensive countries-sectors?

• Focus on both between and within sector reallocation. Not only magnitude, but also quality (where to)

Macro-micro data

• Almost two different papers

• Macro data on employment and value added by sector from EU Klems database

• Microdata on employment, value added and exports of Italian manufacturing firms (INVIND database)

• Case-studies. CEOs of 40 Italian firms

Main findings

• Euro had limited impact on intersectoral reallocation, but increased productivity growth in large sectors in the countries that had been relying (before 1998) on competitive devaluations

• Effects on productivity stronger in low-skill intensive sectors. [China not so relevant]

• More heterogeneity in firm-level productivity in Italy.

• Relatively small effect of the absence of competitive devaluations on dis-employment (thus Euro not bad for jobs)

A EU-wide job miracle(unemployment rate %)

2

3

4

5

6

7

8

9

10

11

12

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Euro area No Euro (DK, SE, UK)

Source: EUROSTAT

Problems

• Theory. Why should we expect more reallocation? What type of reallocation? Which type of convergence?

• Data. Can we use more (and better) micro data?

• Control group. Did Portugal move away from Sweden? Can we find better country matchings before the Euro-treatment?

Why more reallocation

• Mortensen-Pissarides model of job reallocation. More competition in product markets increases reservation productivity and market tightness: more both, job creation and destruction.

• Less heterogeneity in productivity after birth• Effect on JC and JD is larger the stronger is the

bargaining power of workers (“wage rigidities”) and the less efficient is the labour market (in terms of matching). Institutions matter.

Converging to what?

• Not necessarily convergence in structures across the entire EA. Why Portugal should go to Finland?

• Some convergence in structures may occur within sub-groups of EA countries with similar structures to start with and similar institutions

• Compute similarity indexes across pair of EA countries and within groups of countries

• Convergence in within country productivity levels• Control for time-varying institutions (not only FE)

Data-measures

• OECD firm-level database (cf. Bartelsman, Haltiwanger and Scarpetta, 2007): startups, survival, exits.

• ELFS: hiring, separations, job-to-job shifts• Even without micro-data, reallocation can be

measured from cells (sectors, educational attainments, size of firms, etc.)

• Productivity and reallocation. Not all reallocation increases productivity (e.g., AZ moving to Malpensa).

OECD Firm-Level data (va per worker)

Fonte: Scarpetta et al.

ELFS unemployment turnover (7 Euro countries vs. 2 Non Euro countries)

Euro Countries: Be, Es, Fi, Gr, It, Lu, Pt.Non Euro Countries: Dk, Se

0,7

0,9

1,1

1,3

1,5

1,7

1,9

1996 1997 1998 1999 2000 2001 2002 2003 2004

Euro area Non Euro area

Control group

• UK, Denmark, Sweden• High heterogeneity in EA countries and

non-EA countries• Denmark former member of the DM-area• Why not comparing non EA DM countries

(Denmark) with DM EA? Denmark depreciated its currency vis-a-vis the Euro. Also look at the DM-area experience wrt previous years

Overall

• Very timely and interesting paper(s) on relevant issue.

• Needs better data covering both productivity and reallocation

• Important to condition on firms’ survival and institutions trying with other control groups

• How does the theory cope with increasing heterogeneity in plant-level productivity?