Performance, Career Dynamics, and Span of Control
AbstractThere is an extensive theoretical literature based on what is called the scale-of-operations effect, i.e., the idea that the return to managerial ability is higher the more resources the manager influences with his or her decisions. This idea leads to various testable predictions including that higher ability managers should supervise more subordinates, or equivalently, have a larger span of control. And although some of this theory’s predictions have been empirically investigated, there has been little systematic investigation of the theory’s predictions concerning span of control. In this paper we first extend the theoretical literature on the scale-of-operations effect to allow firms’ beliefs concerning a manager’s ability to evolve over the manager’s career, where much of our focus is the determinants of span of control. We then empirically investigate testable predictions from this theoretical analysis using a unique single firm dataset that contains detailed information concerning the reporting relationships at the firm. Our investigation provides strong support both for the model’s predictions concerning wages, wage changes, and probability of promotion, and also for the model’s predictions concerning span of control including predictions derived from the learning component of the model. Overall, our investigation supports the notion that the scale-of-operations effect and additionally learning are important determinants of the internal organization of firms including span of control.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2013-02.
Date of creation: 05 Feb 2013
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performance; career dynamics; span of control;
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-16 (All new papers)
- NEP-BEC-2013-02-16 (Business Economics)
- NEP-CTA-2013-02-16 (Contract Theory & Applications)
- NEP-HRM-2013-02-16 (Human Capital & Human Resource Management)
- NEP-LAB-2013-02-16 (Labour Economics)
- NEP-LMA-2013-02-16 (Labor Markets - Supply, Demand, & Wages)
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