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Exploiting Growth Opportunities: The Role of Internal Labour Markets

Author

Listed:
  • Giacinta Cestone
  • Chiara Fumagalli
  • Francis Kramarz
  • Giovanni Pica

Abstract

We explore how business groups use internal labour markets (ILMs) in response to changing economic conditions. We show that following the exit of a large industry competitor, group-affiliated firms expand, and gain market share by increasing their reliance on the ILM to ensure swift hiring, especially of technical managers and skilled blue collar workers. The ability to take advantage of this shock to growth opportunities is greater in firms with closer access to their affiliates’ human capital, as geographical proximity facilitates employee relocations across units. Overall, our findings point to the ILM as a prominent mechanism making affiliation with a business group valuable at times of change. For the ILM to perform its role in the face of industry shocks, group sectoral diversification must be combined with geographical proximity between affiliates.

Suggested Citation

  • Giacinta Cestone & Chiara Fumagalli & Francis Kramarz & Giovanni Pica, 2024. "Exploiting Growth Opportunities: The Role of Internal Labour Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(5), pages 2676-2716.
    • Handle: RePEc:oup:restud:v:91:y:2024:i:5:p:2676-2716.
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    File URL: http://hdl.handle.net/10.1093/restud/rdad094
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    Cited by:

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    2. Labanca, Claudio & Molina, Danielken & Muendler, Marc-Andreas, 2024. "Preparing for export opportunities," Journal of International Economics, Elsevier, vol. 152(C).

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    Keywords

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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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