Is the German Mittelstand more resistant to crises?

In a globalized world with high international factor mobility, crises often spread quickly over large parts of the world. Politicians carry a vital interest in keeping crises as small and short as possible. Against this background we study whether the type of company of owner-managed SMEs, in Germany well-known as Mittelstand firms, helps increasing an economy’s crisis resistance. We study this issue at the example of the Great Recession of the years 2008/2009. Using micro panel data from the ifo Business Survey, we study the comparative performance of Mittelstand enterprises and find supporting evidence for the hypothesis that Mittelstand firms performed more stable throughout the Great Recession than non-Mittelstand firms. We also show that owner-managed SMEs performed significantly better than SMEs and owner-managed large enterprises. Thus, it is rather the combination of firm size and owner-management that leads to more crisis resistance.

Persistence and Change in Culture and Institutions under Autarchy, Trade, and Factor Mobility

Differences among nations in culture (preferences including social norms) and institutions (contracts) may result in specialization and gains from trade even in the absence of exogenous differences in factor endowments or technologies. Goods differ in the kinds of contracts that are appropriate for their production, and so strategic complementarities between contracts and social norms may result in a multiplicity of cultural-institutional equilibria. The resulting country differences in culture and institutions provide the basis for comparative advantage. In our evolutionary model of endogenous preferences and institutions, transitions among persistent cultural-institutional configurations occur as a result of decentralized and uncoordinated contractual or behavioral innovations by employers or employees. We show that the gains from trade raise the cost of deviations from the prevailing culture and institutions. As a result, trade liberalization impedes decentralized transitions, even to Pareto-improving cultural-institutional configurations. International factor mobility has the opposite effect. (JEL D02, D86, F11, F21, J41, O43, Z13)

International Factor Mobility, Production Cost Components, and Wage Inequality

The present paper establishes a two-sector monopolistic competition model to investigate how international factor mobility influences the skilled–unskilled wage inequality when the monopolistically competitive sector producing final goods is characterized by various types of production cost functions. We discuss three types of production cost functions of the monopolistically competitive sector. Different types of production cost functions have different production factor components of variable and fixed costs. We find that differences in production cost components of the monopolistically competitive sector matter for the impacts of international factor mobility on the skilled–unskilled wage inequality.