Our group members participate in the MICROPROD project, which is funded by the European Union’s Horizon 2020 research and innovation programme. Research groups from eight different countries participate in the research project. The aim of the project is to gain a deeper understanding of the challenges Europe should face connected to productivity growth given the ongoing processes of globalization and digitization. The use of rich micro-level data enables us to shed light on the drivers of productivity and its macroeconomic implications with a policy interest. Further details and the studies created within MICROPROD can be found on the project’s webpage: microprod.eu.

The 16th annual conference of F.R.E.I.T (Forum for Research in Empirical International Trade) was held between the 6th and th of June, 2019. From our research team, both Márta Bisztray and Muraközy Balázs hold presentations. FREIT (Forum for Research in Empirical International Trade) is an international umbrella organization, aiming to connect and further research activities int he field of empirical international economics.

While Márta in her presentation have discussed the role that corporate relationship may have in firms’ FDI decisions, Balázs spoke about linkages between internationalization decisions of firms, risk taking and linkages between managerial attributes.

The Second Volume of the Capital Adequacy Handbook of Banks by Márton Radnai, Nikolett Bóta and Dzsamila Vonnák is published. The handbook overviews the banks’ capital requirement regulations with an emphasis on the Hungarian rules. The aim of the banking regulation is to make the banks handle their risk properly. One of its tools is the capital adequacy, that is to set the minimum of the regulatory capital. Unlike other business enterprise – where the funding role of the capital is emphasized – in case of the banks the essential role of the capital is to ensure safety, that is, to absorb the asset side losses. The capital adequacy rules set in detail the amount and composition of the capital banks have to hold to cover their unexpected losses. The handbook overviews this topic, it helps the understanding of the concerning rules with explanations and examples. This volume summarizes the changes that have happened since the publication of the first volume. 

On the EU’s website, it is now possible to access our recent 200-page report, discussing Hungary’s productivity dynamics and growth.

With the aid of Hungarian micro data, the report analyses the challenges of improving productivity and the reasons behind the recent slowdown of its growth rate. In the report, firstly, we inspected the trends in various groups’ productivity averages, discussing them also in international comparison, and then, had a closer look on the changes in the whole productivity distribution in Hungary.

Additionally, we also looked at the efficiency of the allocation of resources, between firms as well as sectors, and analysed in depth their differences in employment. A whole chapter is dedicated to the analysis of the idiosyncrasies of the retail sector.

The European Commission’s report on Hungary, that was also published recently, relies heavily on this text. This EC’s report can be accessed here.

The European Commission’s report on Hungary was just published. The report assesses our country’s development in several important policy areas and offers some recommendations. One of the main areas where it finds reform to be crucial is that of national competitiveness and investment, with a special emphasis on investment into intellectual property.

The chapter that focuses on these topics relies heavily on a report that our team has prepared for the European Commission. In particular, this documented the sluggish productivity growth observable in domestically-owned firms, and foreign-owned firms’ comparative, but in an international perspective minor advantage. With respect to investment, we found that while recent low interest rates and economic growth led to an increase in overall terms, investment into intellectual property is still lagging behind the EU average.

Innovation activity in the private sector is also below the EU average, and it is mainly observable in large, foreign-owned firms, who are supported by governmental subsidies. Public sector innovation, similarly, is below the EU average of 0.7%, and has fallen since 2006 from 0.49 percent of the GDP to 0.35 percentage.

In the European Commission’s report, a special box is dedicated to our report’s discussion of Hungarian ‘zombie’ firms. This term refers to unproductive, financially unviable firms whose presence, to a considerable extent, is responsible for the lower aggregate productivity growth and investment. In 2012, 6 % of all Hungarian firms could be categorized as `zombie’, and these firms employed 10-15% of the country’s working population. Their share after 2012 has decreased, mainly in result of the central bank’s intervention aimed at reducing these firms’ debt burden, but the data indicates that this policy was not sufficient to help them find an efficient way to grow, rather it has only prolonged their existence.

The report can be read here.

The annual conference of AASLE (Asian and Australian Society of Labour Economics) was held in Seoul between the 13th and 15th of December. Balázs Reizer, our team member, held a presentation here discussing the characteristics of companies offering flexible wages. Examining the nature of flexible wages is important as lots of workers, at least partly, receive their remuneration this way. Companies often use the construct to incentivise workers. Can flexible wages protect employment from a negative revenue shock?

With linked Hungarian employer-employee microdata Balázs examined the relation between the presence of flexible wages in a company and its characteristics. He also looked at the factors determining whether a firm opts for this form of compensation .

Data shows that firms with flexible wages are larger, more productive, and have a less volatile growth rate than firms not utilising the construct. Further, it also shows that flexible wage components are more reactive to firm-level revenue changes. Unfortunately, thus, when revenue falls sharply, such as during a crisis, these companies react just as other companies do, they let go of their employees.

The presentation can be read here.

The World Bank’s new book that focuses on high growth firms (HGFs) through the analyzis of firm growth in 11 different countries, was just published. One of the countries under analysis is Hungary, and for this, the institute based their findings on Balázs Muraközy’s publication, titled “High-Growth Firms in Hungary ” (cowritten with Francesca de Nicolaval and Shawn W. Tan).

One of the book’s main findings is that HGFs not only increase job opportunities and productivity, but they also create spillover effects for other companies, through their innovation and global relations. Further, the book also details that these HGFs often struggle to keep the high growth for long periods. The book’s conclusion is that policy should focus on supporting HGFs in maintaining their growth rate rather than searching for and supporting potential HGFs.

Balázs and his cowriter’s publication seconds these aforementioned findings. In their article, they analyzed Hungarian microdata and found that spillover effects of HGFs are indeed present. They show that in sectors where HGFs are plenty, medium-growth firms tend to produce higher growth rates than similar companies do in sectors where HGFs are less preponderant.

The publication of World Bank can be read here, and the publication of Muraközy et al. is available here.

In our previous post, we announced that the preliminary results of our recent project investigating the relationship between wage inequality and firms’ innovation activity were presented at the University College London’s seminar. This time, Balázs Muraközy had the chance to introduce these results also to the audience of the annual conference of the American Economic Association, in Atlanta. The presentation was discussed by Stanford’s economist, Nick Bloom.

The American Economic Association is a learned society, with a history of more than 130 years and a membership of over 20.000 economists. As one of the most renowned economic institutes, the organization’s aim is to discuss and facilitate the development of economic research around the world. AEA’s journals are among the most influential academic papers of their kind, as measured by the journals’ impact factor, which is indicative of how outstanding a chance is to present at their conference.

Further, one of our team members, Attila Lindner, has also had the privilege to organize a complete section of this year’s conference. He was responsible for the Innovation and Inequality: The Role of Firms section, which also featured Balázs’s presentation.

The presentation discussed ways in which it is possible to define the innovation activities of firms and the way in which these definitions affect our understanding of innovation’s impact on wage inequality within firms. One of the paper’s novelty is that, aside from innovation resulting from R&D activity, it also investigates the effect of low- and high-novelty innovation types by analysing firm-level microdata. Our results indicate that both the number of workers with tertiary educated and their wage increases in consequences of innovation activity by the firm, regardless of the innovation’s type. The presentation can be viewed here.

Our team is currently investigating the relationship between corporate innovation and wage inequality. Balázs Muraközy presented the research’s preliminary results in a seminar at the University College London. Here, he introduced some new ways in which corporate innovation may be defined and discussed how these modifications are found to alter wage inequality within companies. One of the novelty of the research is that it employs micro-level analysis considering not only R&D-based achievements, but also low-novelty forms of innovation, such as re-organization and adaptation. The analysis shows that both the number of college educated workers and their wages increase, if a company participates in any kind of innovation. This widens the within company wage inequality, as is measured through the wage of variously skilled groups. The presentation can be found here.