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Too many theories, too few facts? What the data tell us about the link between span of control, compensation and career dynamics

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  • Smeets, Valerie
  • Warzynski, Frederic

Abstract

In this paper, we use a unique personnel dataset from a large European firm in an high tech manufacturing industry that provides information about hierarchical relationships. This unusually rare feature allows us to identify the chain of command. We provide a few stylized facts about the link between span of control, compensation and career dynamics and relate our findings to the existing theoretical literature of hierarchies in organizations: the assignment model, the incentives model, the information processing model, the supervision model, and the knowledge-based hierarchy model. We observe an increase in the span, an increase in wage inequality between job levels, and the introduction of a new hierarchical level. We also find that higher spans of control are associated with higher wages. The knowledge-based hierarchy provides the most likely explanation for these results when communication costs are decreasing. However, we also find evidence of learning and reallocation of talent within and across job levels, a finding that can not be explained by a static model of knowledge based hierarchy but rather by dynamic models of careers in organizations. Finally, we provide a few suggestions to enrich the existing theoretical literature and reconcile it with the facts.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 15 (2008)
Issue (Month): 4 (August)
Pages: 687-703

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Handle: RePEc:eee:labeco:v:15:y:2008:i:4:p:687-703

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Web page: http://www.elsevier.com/locate/labeco

Related research

Keywords: J24 J31 M5 Hierarchy Span of control Wage determination Promotions Careers;

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References

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  1. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133 Elsevier.
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Cited by:
  1. Rui Baptista & Francisco Lima & Miguel Preto, 2013. "Entrepreneurial skills and workers’ wages in small firms," Small Business Economics, Springer, vol. 40(2), pages 309-323, February.
  2. Xianwen Shi & Ronald Wolthoff & Aloysius Siow & Robert McCann, 2012. "Becker meets Ricardo: A social and cognitive skills model of human capabilities," 2012 Meeting Papers 32, Society for Economic Dynamics.
  3. Robert J. McCann & Xianwen Shi & Aloysius Siow & Ronald Wolthoff, 2012. "Becker Meets Ricardo: Multisector Matching with Social and Cognitive Skills," Working Papers tecipa-454, University of Toronto, Department of Economics.
  4. Westling, Tatu, 2012. "Managerial spans, industry tasks and ICT: evidence from the U.S," MPRA Paper 39403, University Library of Munich, Germany.
  5. Valerie Smeets & Michael Waldman & Frederic Warzynski, 2013. "Performance, Career Dynamics, and Span of Control," Economics Working Papers 2013-02, School of Economics and Management, University of Aarhus.

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