Corporations, as separate legal entities with transferable equity ownership, can make decisions and carryout contracts that extend beyond the lifetime of any proprietor. This matters when the relevant production function(s) allow delays between inputs and when output results. A corporation can transfer the value of increased productivity in the far distant future into present equity owner income, independent of the corporation’s ability to accumulate capital or reduce risk or transactions costs. We demonstrate they can adopt, and more efficiently use, technological advances that are irrational for finite-lived proprietors. Corporations by using complex production functions with delays cause higher economic growth.
Gray and Benassy analysed the optimal wage indexation choice for representative agents and labor unions when monetary or/and real shocks are generated by a symmetric distribution. Here their analysis is extended to the more relevant choice for firm owners. In general, the probability of contractionary monetary and real shocks, either alone or simultaneously, can make any degree of indexation optimal. If restricted to plausible values, a firm’s optimal choice is usually the opposite of that for representative/self-employed agents or labor unions, because it can increase the owner’s profit at the expense of worker’s income. Indexation is arguably non-optimal for firms.
In the paper, “The Minimum Wage, Teenage Employment and the Business Cycle,” the effect of increases in the federal minimum wage on monthly black and white teenage employment is examined based upon our new disequilibrium theory at the level of the firm that predicts changing regimes between the demand and supply of labor associated with the business cycle phase. Both simple, exploratory data analysis and more sophisticated econometrics are consistent with past findings when the data is pooled, but finds large, significant, negative employment effects in contractions and positive or zero, insignificant effects in expansions. These effects apparently offset each other in the pooled data. This is consistent with a disequilibrium theory and suggests that minimum wage policy should depend upon the phase of the business cycle.