Employment, Productivity, and Business Groups: Evidence from Chaebols in Korea

Does the ownership structure matter for firms’ employment decisions? Using confidential Korean firm-level data, I document novel empirical facts about the employment behavior of firms belong to business groups in Korea, also known as Chaebols, which is significantly different from that of non-Chaebol firms. Then, I provide empirical evidence for spillover effects and the heterogeneous roles within-group, suggesting that business groups use central firms as pools for internal labor markets, responding to the shocks of other firms in the same group. Finally, I propose a new model of business groups that can explain key empirical facts about the hiring rules of business groups and show that firing costs at the group level can explain the slow response of business groups and the labor hoarding of central firms, indicating that government policies for job security may cause substantial economy-wide efficiency losses.