IDEAS home Printed from https://ideas.repec.org/a/eee/jetheo/v209y2023ics0022053123000352.html
   My bibliography  Save this article

The strategic decentralization of recruiting

Author

Listed:
  • Chen, Yi
  • Jungbauer, Thomas
  • Wang, Zhe

Abstract

We propose a model of strategic delegation in professional labor markets in which big and fringe firms compete for heterogeneous workers. In this context, big firms decide whether to exercise their market power to suppress wages (wage suppression) or to delegate hiring to divisions, thereby committing to bidding more fiercely for more skilled workers (talent acquisition). This reduces the incentive for other firms to go toe-to-toe with the decentralizing firm. In equilibrium, a big firm commanding labor market power opts for either of these two strategies. We find that the presence of a big firm in the labor market is detrimental to social welfare only if its size exceeds the tipping point beyond which it ceases to decentralize. Moreover, our model is compatible with recent studies that negatively link labor market concentration and labor share. Finally, the introduction of a wage floor encourages the big firm to decentralize, increasing match quality, such that social welfare may increase despite a drop in employment.

Suggested Citation

  • Chen, Yi & Jungbauer, Thomas & Wang, Zhe, 2023. "The strategic decentralization of recruiting," Journal of Economic Theory, Elsevier, vol. 209(C).
    • Handle: RePEc:eee:jetheo:v:209:y:2023:i:c:s0022053123000352
    DOI: 10.1016/j.jet.2023.105639
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022053123000352
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jet.2023.105639?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marius Schwartz & Earl A. Thompson, 1986. "Divisionalization and Entry Deterrence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 307-321.
    2. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 551-575.
    3. Azar, José & Marinescu, Ioana & Steinbaum, Marshall & Taska, Bledi, 2020. "Concentration in US labor markets: Evidence from online vacancy data," Labour Economics, Elsevier, vol. 66(C).
    4. Michael R Ransom & David P. Sims, 2010. "Estimating the Firm's Labor Supply Curve in a "New Monopsony" Framework: Schoolteachers in Missouri," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 331-355, April.
    5. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
    6. Baye, Michael R & Crocker, Keith J & Ju, Jiandong, 1996. "Divisionalization, Franchising, and Divestiture Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 86(1), pages 223-236, March.
    7. David Autor & David Dorn & Lawrence F Katz & Christina Patterson & John Van Reenen, 2020. "The Fall of the Labor Share and the Rise of Superstar Firms [“Automation and New Tasks: How Technology Displaces and Reinstates Labor”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 645-709.
    8. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-366, May.
    9. Douglas O. Staiger & Joanne Spetz & Ciaran S. Phibbs, 2010. "Is There Monopsony in the Labor Market? Evidence from a Natural Experiment," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 211-236, April.
    10. Jeremy Bulow & Jonathan Levin, 2006. "Matching and Price Competition," American Economic Review, American Economic Association, vol. 96(3), pages 652-668, June.
    11. William M. Boal & Michael R. Ransom, 1997. "Monopsony in the Labor Market," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 86-112, March.
    12. Jan De Loecker & Jan Eeckhout & Gabriel Unger, 2020. "The Rise of Market Power and the Macroeconomic Implications [“Econometric Tools for Analyzing Market Outcomes”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 561-644.
    13. Bhaskar, V & To, Ted, 1999. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Economic Journal, Royal Economic Society, vol. 109(455), pages 190-203, April.
    14. Birkinshaw, Julian & Hood, Neil & Young, Stephen, 2005. "Subsidiary entrepreneurship, internal and external competitive forces, and subsidiary performance," International Business Review, Elsevier, vol. 14(2), pages 227-248, April.
    15. Baye, Michael R. & Crocker, Keith J. & Ju, Jiandong, 1996. "Divisionalization and franchising incentives with integral competing units," Economics Letters, Elsevier, vol. 50(3), pages 429-435, March.
    16. Polasky, Stephen, 1992. "Divide and conquer On the profitability of forming independent rival divisions," Economics Letters, Elsevier, vol. 40(3), pages 365-371, November.
    17. Ransom, Michael R, 1993. "Seniority and Monopsony in the Academic Labor Market," American Economic Review, American Economic Association, vol. 83(1), pages 221-233, March.
    18. Manolis Galenianos & Philipp Kircher & Gábor Virág, 2011. "Market Power And Efficiency In A Search Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 85-103, February.
    19. Orley C. Ashenfelter & Henry Farber & Michael R Ransom, 2010. "Labor Market Monopsony," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 203-210, April.
    20. Landon, John H & Baird, Robert N, 1971. "Monopsony in the Market for Public School Teachers," American Economic Review, American Economic Association, vol. 61(5), pages 966-971, December.
    21. Anthony Creane & Carl Davidson, 2004. "Multidivisional firms, internal competition, and the merger paradox," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(4), pages 951-977, November.
    22. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    23. Alan Manning, 2006. "A Generalised Model of Monopsony," Economic Journal, Royal Economic Society, vol. 116(508), pages 84-100, January.
    24. Elena Prager & Matt Schmitt, 2021. "Employer Consolidation and Wages: Evidence from Hospitals," American Economic Review, American Economic Association, vol. 111(2), pages 397-427, February.
    25. Lawrence M. Kahn, 2000. "The Sports Business as a Labor Market Laboratory," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 75-94, Summer.
    26. Alan Manning & Ted To, 2002. "Oligopsony and Monopsonistic Competition in Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 155-174, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David Berger & Kyle Herkenhoff & Simon Mongey, 2022. "Labor Market Power," American Economic Review, American Economic Association, vol. 112(4), pages 1147-1193, April.
    2. Gibson, Matthew, 2021. "Employer Market Power in Silicon Valley," IZA Discussion Papers 14843, Institute of Labor Economics (IZA).
    3. Ziss, Steffen, 2007. "Hierarchies, intra-firm competition and mergers," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 237-260, April.
    4. Izumi, Atsuko & Kodama, Naomi & Kwon, Hyeog Ug, 2023. "Labor market concentration and heterogeneous effects on wages: Evidence from Japan," Journal of the Japanese and International Economies, Elsevier, vol. 67(C).
    5. Tabasso, D, 2009. "Temporary Contracts and Monopsony Power in the UK Labour Market," Economics Discussion Papers 8938, University of Essex, Department of Economics.
    6. Manning, Alan, 2011. "Imperfect Competition in the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 11, pages 973-1041, Elsevier.
    7. Samuel Muehlemann & Paul Ryan & Stefan C. Wolter, 2013. "Monopsony Power, Pay Structure, and Training," ILR Review, Cornell University, ILR School, vol. 66(5), pages 1097-1114, October.
    8. Antonio Tesoriere, 2021. "Drastic innovation reduces firms’ incentives to create divisions," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(3), pages 971-994, October.
    9. Azar, José & Marinescu, Ioana & Steinbaum, Marshall & Taska, Bledi, 2020. "Concentration in US labor markets: Evidence from online vacancy data," Labour Economics, Elsevier, vol. 66(C).
    10. Alan Manning, 2021. "Monopsony in Labor Markets: A Review," ILR Review, Cornell University, ILR School, vol. 74(1), pages 3-26, January.
    11. Cazzuffi, Chiara & Pereira-López, Mariana & Rosales, Irving & Soloaga, Isidro, 2023. "Monopsony Power and Labor Income Inequality in Mexico," IDB Publications (Working Papers) 13044, Inter-American Development Bank.
    12. Kevin Rinz, 2018. "Labor Market Concentration, Earnings Inequality, and Earnings Mobility," CARRA Working Papers 2018-10, Center for Economic Studies, U.S. Census Bureau.
    13. Francesco Amodio & Nicolás de Roux, 2021. "Labor Market Power in Developing Countries: Evidence from Colombian Plants," Documentos CEDE 19267, Universidad de los Andes, Facultad de Economía, CEDE.
    14. Clémence Berson, 2016. "Local labor markets and taste-based discrimination," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-21, December.
    15. Steven Berry & Martin Gaynor & Fiona Scott Morton, 2019. "Do Increasing Markups Matter? Lessons from Empirical Industrial Organization," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 44-68, Summer.
    16. Corchon, Luis C. & Gonzalez-Maestre, Miguel, 2000. "On the competitive effects of divisionalization," Mathematical Social Sciences, Elsevier, vol. 39(1), pages 71-79, January.
    17. Saggi, Kamal & Vettas, Nikolaos, 2002. "On intrabrand and interbrand competition: The strategic role of fees and royalties," European Economic Review, Elsevier, vol. 46(1), pages 189-200, January.
    18. Ziss, Steffen, 1999. "Divisionalization and strategic managerial incentives in oligopoly under uncertainty," International Journal of Industrial Organization, Elsevier, vol. 17(8), pages 1163-1187, November.
    19. Beladi, Hamid & Chakrabarti, Avik, 2019. "Multidivisional firms, internal competition, and comparative advantage: Baye et al. Meet Neary," Journal of International Economics, Elsevier, vol. 116(C), pages 50-57.
    20. Luca Lambertini & Giuseppe Pignataro, 2019. "On the social (sub)optimality of divisionalization under product differentiation," Journal of Economics, Springer, vol. 128(3), pages 225-238, December.

    More about this item

    Keywords

    Strategic delegation; Market power; Recruiting; Decentralization; Labor share; Wage floor;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jetheo:v:209:y:2023:i:c:s0022053123000352. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622869 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.