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Internal Labor Markets And Investment In Conglomerates

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  • RUI SILVA

Abstract

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.

Suggested Citation

  • Rui Silva, 2013. "Internal Labor Markets And Investment In Conglomerates," Working Papers 13-26, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:13-26
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    File URL: https://www2.census.gov/ces/wp/2013/CES-WP-13-26.pdf
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    Cited by:

    1. Giacinta Cestone & Chiara Fumagalli & Francis Kramaz & Giovanni Pica, 2015. "Insurance Between Firms: The Role of Internal Labor Markets," CSEF Working Papers 386, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 15 Feb 2017.
    2. Nuri Ersahin & Rustom M. Irani & Hanh Le, 2015. "Creditor Control Rights and Resource Allocation within Firms," Working Papers 15-39, Center for Economic Studies, U.S. Census Bureau.
    3. Nuri Ersahin, 2017. "Creditor Rights, Technology Adoption, and Productivity: Plant-Level Evidence," Working Papers 17-36, Center for Economic Studies, U.S. Census Bureau.

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