Richard Fabling

Export Performance, Invoice Currency and Heterogeneous Exchange Rate Pass-through

Using comprehensive, shipment-level merchandise trade data, we examine the extent to which New Zealand exporters maintain stable New Zealand dollar prices by passing on exchange rate changes to foreign customers. We find that the extent to which firms absorb exchange rate fluctuations in the short run is significantly related to both invoice currency choice and exporter characteristics when these are analysed separately. However, when jointly accounted for, the role of exporter characteristics largely disappears. That is, some firm types are more inclined to invoice in the New Zealand dollar, while others use either the importer or a third currency. In the short run, this translates into differences in exchange rate pass-through because of price rigidity in the invoice currency. Differences across invoice currencies diminish, but do not disappear, over time as prices adjust to reflect bilateral exchange rate movements.

Productivity and Local Workforce Composition

This chapter examines the link between firm productivity and the population composition of the areas in which firms operate. We combine annual firm-level microdata on production, covering a large proportion of the New Zealand economy, with area-level workforce characteristics obtained from population censuses. Overall, the results support the existence of agglomeration effects that operate through labour markets. We find evidence of productive spillovers from operating in areas with high-skilled workers, and with high population density. A high-skilled local workforce benefits firms in high-skilled and high-research and development industries, and small firms. The benefits of local population density are strongest for firms in dense areas, and for small and new firms. Firms providing local services are more productive in areas with high shares of migrants and new entrants, consistent with local demand factors.

Cyclical Labour Market Adjustment in New Zealand: The Response of Firms to the Global Financial Crisis and its Implications for Workers

This paper examines the dynamics of employment adjustment in New Zealand, focusing on the response of firms to the 2008/09 Global Financial Crisis. We use data from Statistics New Zealand’s prototype Longitudinal Business Database (LBD) to examine firms’ employment responses to output shocks before and after the crisis, and to investigate variations in job and worker flows. We discuss the resilience of the NZ labour market to economic shocks, and the possible role of labour market policy settings. Finally, we discuss preliminary findings on the differential impact of labour market adjustment on workers – by earnings level, age, gender, and tenure – and outline potential further work along these lines. Our analysis of firm microdata highlights three key features of New Zealand labour market adjustment to the 2008/09 crisis. First, there was considerable heterogeneity across firms, both before and after the crisis, in the size of output shocks that firms faced, the amount of employment adjustment in response to any given output shock, and in the size of worker flows given the firm’s employment adjustment. Second, the crisis not only moved the distribution of output shocks faced by firms, but also altered the relationship between output shocks and changes in job and worker flows and employment. Third, the impact of the observed firm-level dynamics had an uneven impact on workers, with greater employment losses for low wage workers, young workers, and workers with low job tenure.

Firm-Level Hiring Difficulties: Persistence, Business Cycle and Local Labour Market Influences

We examine the correlates of reported hiring difficulties at the firm level using linked employer-employee and panel survey data over 2005-2011, focussing on the relative influence of firm-level characteristics, persistence, the business cycle and local labour market liquidity. At both the aggregate and the firm-level, hiring difficulties eased after the onset of the Global Financial Crisis. Even in the presence of large cyclical changes in demand and labour market conditions, firm-level persistence is a dominant feature of the data, with one- and two-year lags of reported hiring difficulties both positively related to current difficulties. Firms paying higher wages are more likely to report difficulties when trying to hire skilled workers, while firms with more long tenure workers are less likely to report any difficulty hiring. Local labour market conditions appear unrelated to reported hiring difficulties.

HR practices and New Zealand firm performance: what matters and who does it?

We examine the impact of human resource practices, especially those considered as parts of high performance work systems, on firm performance. The analysis is unique in using data from an economy-wide official survey to determine whether firms that adopt high performance HR practices perform better than their rivals. We find that adoption of a suite of high performance practices (and adoption of specific practices pertaining to staff training and performance pay) has a causal impact on firm outcomes. The strength of the relationships differs by firm size and age. Firms that adopt high performance practices are predominantly young and in high-tech related sectors.

Over the Hedge: Do Exporters Practice Selective Hedging?

What determines exporters’ exchange rate hedging decisions and do exporters attempt to “time the market”? We use a unique unit record longitudinal administrative dataset on firm exports to find the determinants of exporters’ currency hedging choices. Determinants include financial fragility, prior hedging experience, and natural hedge opportunities. In addition, firms alter their hedging ratios when the currency has recently trended in one direction. We test whether such behaviour reflects firm characteristics (such as pricing power). We find that these responses are ubiquitous for all but large firms and for all times other than when the exchange rate is near its extreme high or low historical values. These results are consistent with most firms practicing selective hedging (market timing) behaviour that reflects a belief in exchange rate momentum effects. However, this behaviour appears sub-optimal since momentum effects are statistically absent from the underlying exchange rate data.

The Incidence and Persistence of Cyclical Job Loss in New Zealand

In New Zealand, the impact of the 2007–2008 Global Financial Crisis (GFC) was milder than in most other developed countries, though still substantial, with employment declining by 2.5 percent between the fourth quarter of 2008 and the fourth quarter of 2009. There were pronounced declines in job and worker turnover rates, signalling a decline in labour market liquidity and difficulties for new entrants and high-turnover groups of workers (Fabling and Mare, 2012). The current paper documents the extent and composition of employment change between 2000 and 2011, focusing particularly on the 2008–2010 period, when the labour market impacts of the GFC were strongest. As in previous downturns, the incidence of cyclical job loss and unemployment has fallen disproportionately on young and unskilled workers. The paper identifies, for subgroups of workers identified by age, gender and earnings level, the sensitivity of employment growth and labour market flows to aggregate employment fluctuations and also to relative fluctuations across industries and local labour market areas. The rate of job accessions (hiring) is particularly sensitive to the economic cycle and most strongly for young workers. Most of the differences across groups in the size of cyclical employment fluctuations are due to differing responsiveness to common shocks and not to exposure to different industry and local shocks. Finally, the paper traces outcomes for workers whose jobs end, summarising their duration out of work and the wage increases or reductions they experience when they secure employment. Workers who left or lost jobs spent longer out of work after the GFC and settled for lower earnings growth when they did find a job. Both of these effects had partly but not fully abated within 3 years of the onset of the GFC.

Estimating Firm-Level Effective Marginal Tax Rates and the User Cost of Capital in New Zealand

Effective marginal tax rates (EMTRs) can be very different from the statutory rate and vary across firms, reflecting such factors as the extent and nature of taxable deductions (losses, depreciation), asset and ownership structures, and debt/equity financing. We estimate firm-specific EMTRs and related user cost of capital (UCC) measures allowing for shareholder-level taxation using data for 2000-2010 from the Longitudinal Business Database. Examining distributions of various UCC measures we find substantial firm-level heterogeneity, systematic changes as a result of tax reforms between 2004 and 2011, and systematic differences between foreign-owned and domestically-owned firms. Choices among alternative UCC measures make a difference to interpretations.

National R&D and Patenting: Is New Zealand an Outlier?

We analyse patterns of national R&D and patenting activity across developed countries, accounting for factors that may impact on small, distant countries. Once we control for the effects of economic size, distance, sectoral composition and firm size, New Zealand is not an outlier in its per capita patenting performance or its level of R&D expenditure. Nor is the private sector share of R&D expenditure unusually low. If anything, New Zealand has a higher than expected private sector R&D share and slightly ‘over‐performs ‘ in terms of patenting and R&D activity. We discuss some implications of the results for New Zealands national innovation system.

Production Function Estimation Using New Zealand's Longitudinal Business Database

This paper is intended as a resource for researchers using the New Zealand Longitudinal Business Database (LBD) to study the productivity of New Zealand firms. First, it documents the methods used for creating a consistent dataset of production data, combining survey and administrative data sources. Second, it discusses a range of identification and estimation issues that arise when using the data for the estimation of multi-factor productivity. Finally, it demonstrates the value and usefulness of the data by presenting and comparing a range of productivity estimates for a single industry.