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Internal Labor Markets And Investment In Conglomerates

  • RUI SILVA
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    The literature on conglomerates has focused on the misallocation of investments as the cause of the conglomerate discount. I study frictions in the internal labor market as a possible cause of misallocation of investments. Using detailed plant-level data, I document wage convergence in conglomerates: workersin low-wage industries collect higher-than-industry wages when the diversified rm is also present in high-wage industries (by 5.2%). I con rm this effect by exploiting a quasi-experiment involving the implementation of the NAFTA agreement that exogenously increases worker wages of exporting plants. I track the evolution of wages in non-exporting plants in diversi ed rms that also own exporting plants and nd a signi cant increase in wages of these plants relative to una liated non-exporting plants after the event. This pattern of wage convergence affects investments. Plants where workers collect higher-than-industry wages increase the capital-labor ratio in response to their higher labor cost -- and this response to higher wages is associated with higher investment in some divisions.

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    File URL: ftp://ftp2.census.gov/ces/wp/2013/CES-WP-13-26.pdf
    File Function: First version, 2013
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    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 13-26.

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    Length: 62 pages
    Date of creation: May 2013
    Date of revision:
    Handle: RePEc:cen:wpaper:13-26
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