DP9073 The Anatomy of French Production Hierarchies

Author(s): Lorenzo Caliendo , Ferdinando Monte , Esteban Rossi-Hansberg

Publication Date: July 2012

Keyword(s): Firm Dynamics , Firm Growth , Organizational Change , Organizations , Skills , Wages

JEL(s): D22 , F16 , J24 , J31

Programme Areas: Industrial Organization , International Trade and Regional Economics , Labour Economics

Link to this Page: www.cepr.org/pubs/dps/DP9073.asp.asp

We use a comprehensive dataset of French manufacturing firms to study their internal organization. We first divide the employees of each firm into `layers' using occupational categories. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. In addition, the probability of adding (dropping) a layer is very positively (negatively) correlated with value added. We then explore the changes in the wages and number of employees that accompany expansions in layers, output, or markets (by becoming exporters). The empirical results indicate that reorganization, through changes in layers, is key to understand how firms expand and contract. For example, we find that firms that expand substantially add layers and pay lower average wages in all pre-existing layers. In contrast, firms that expand little and do not reorganize pay higher average wages in all pre-existing layers.