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Trade in Tasks and the Organization of Firms

Author

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  • Marin, Dalia
  • Schymik, Jan
  • Tarasov, Alexander

Abstract

We incorporate trade in tasks à la Grossman and Rossi-Hansberg (2008) into a small open economy version of the theory of firm organization of Marin and Verdier (2012) to examine how offshoring affects the way firms organize. We show that the offshoring of production tasks leads firms to reorganize with a more decentralized management, improving the competitiveness of the offshoring firms. We show further that the offshoring of managerial tasks relaxes the constraint on managers but toughens competition, and thus has an ambiguous impact on the level of decentralized management and CEO wages of the offshoring firms. In sufficiently open economies, however, managerial offshoring unambiguously leads to more decentralized management and to larger CEO wages. We test the predictions of the model based on original firm level data we designed and collected of 660 Austrian and German multinational firms with 2200 subsidiaries in Eastern Europe. We find that offshoring firms are 33.4% more decentralized than non-offshoring firms. We find further that the average fraction of managers offshored reduces the level of decentralized management by 3.1%, but increases the level of decentralized management by 4% in industries with a level of openness above the 25th percentile of the openness distribution. Lastly, we find that one additional offshored manager lowers CEO wages relative to workers by 4.9%.

Suggested Citation

  • Marin, Dalia & Schymik, Jan & Tarasov, Alexander, 2014. "Trade in Tasks and the Organization of Firms," Discussion Papers in Economics 21741, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:21741
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    References listed on IDEAS

    as
    1. Dalia Marin, 2006. "A New International Division of Labor in Europe: Outsourcing and Offshoring to Eastern Europe," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 612-622, 04-05.
    2. Robert C. Johnson & Guillermo Noguera, 2012. "Fragmentation and Trade in Value Added over Four Decades," NBER Working Papers 18186, National Bureau of Economic Research, Inc.
    3. Demidova, Svetlana & Rodríguez-Clare, Andrés, 2009. "Trade policy under firm-level heterogeneity in a small economy," Journal of International Economics, Elsevier, vol. 78(1), pages 100-112, June.
    4. Fabbri, Francesca & Marin, Dalia, 2012. "What Explains the Rise in CEO Pay in Germany? A Panel Data Analysis for 1977-2009," CEPR Discussion Papers 8879, C.E.P.R. Discussion Papers.
    5. Dalia Marin, 2011. "The Opening Up of Eastern Europe at 20: Jobs, Skills and Reverse Maquiladoras in Austria and Germany," Chapters,in: International Handbook on the Economics of Integration, Volume II, chapter 13 Edward Elgar Publishing.
    6. Vicente Cuñat & Maria Guadalupe, 2009. "Globalization and the Provision of Incentives inside the Firm: The Effect of Foreign Competition," Journal of Labor Economics, University of Chicago Press, vol. 27(2), pages 179-212, April.
    7. Marin, Dalia & Verdier, Thierry, 2014. "Corporate hierarchies and international trade: Theory and evidence," Journal of International Economics, Elsevier, vol. 94(2), pages 295-310.
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    Citations

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    Cited by:

    1. Schymik, Jan Simon, 2015. "Trade, Technologies, and the Evolution of Corporate Governance," Discussion Papers in Economics 24871, University of Munich, Department of Economics.
    2. Luis Garicano & Esteban Rossi-Hansberg, 2015. "Knowledge-Based Hierarchies: Using Organizations to Understand the Economy," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 1-30, August.
    3. Boddin, Dominik & Henze, Philipp, 2015. "International trade and the occupational mix in manufacturing: Evidence from german micro data," Economics Working Papers 2015-05, Christian-Albrechts-University of Kiel, Department of Economics.
    4. Gumpert, Anna, 2015. "The organization of knowledge in multinational firms," Discussion Papers 33/2015, Deutsche Bundesbank.
    5. Beata Javorcik & Steven Poelhekke, 2017. "Former Foreign Affiliates: Cast Out and Outperformed?," Journal of the European Economic Association, European Economic Association, vol. 15(3), pages 501-539.
    6. Schymik, Jan, 2013. "Trade, Technologies and the Talent Organization," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79922, Verein für Socialpolitik / German Economic Association.
    7. Anna Gumpert, 2015. "The Organization of Knowledge in Multinational Firms," CESifo Working Paper Series 5401, CESifo Group Munich.
    8. Gumpert, Anna, 2017. "The Organization of Knowledge in Multinational Firms," Rationality and Competition Discussion Paper Series 29, CRC TRR 190 Rationality and Competition.
    9. KODAMA Naomi & Beata S. JAVORCIK & ABE Yukiko, 2016. "Transplanting Corporate Culture across International Borders: FDI and female employment in Japan," Discussion papers 16015, Research Institute of Economy, Trade and Industry (RIETI).
    10. Schymik, Jan, 2017. "Earnings Inequality and the Global Division of Labor: Evidence from the Executive Labor Market," Discussion Papers in Economics 38385, University of Munich, Department of Economics.
    11. repec:eee:eecrev:v:102:y:2018:i:c:p:39-61 is not listed on IDEAS

    More about this item

    Keywords

    international trade with endogenous organizations; the rise of human capital; theory of the firm; multinational firms; CEO pay;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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