Too many theories, too few facts? What the data tell us about the link between span of control, compensation and career dynamics
AbstractIn 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 InfoArticle provided by Elsevier in its journal Labour Economics.
Volume (Year): 15 (2008)
Issue (Month): 4 (August)
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Web page: http://www.elsevier.com/locate/labeco
J24 J31 M5 Hierarchy Span of control Wage determination Promotions Careers;
Find related papers by JEL classification:
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- M5 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics
- Hie - Public Economics - - - - -
- Spa - - - - - -
- of - - -
- con - - - - - -
- Wag - - - - - -
- det - - - - - -
- Pro - Economic Systems - - - - -
- Car - Mathematical and Quantitative Methods - - - - -
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