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The Anatomy of French Production Hierarchies

  • Lorenzo Caliendo

    (Yale University)

  • Ferdinando Monte

    (Johns Hopkins University, Carey Business School)

  • Esteban Rossi-Hansberg

    (Princeton University)

We use a comprehensive dataset of French manufacturing firms to study their internal organization. We first divide the employees of each firm into layers using occupational characteristics. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. Dividing firms into a collection of hierarchical layers is useful for understanding their organization, as well as changes in their organization. We show that the probability of adding (dropping) a layer is very positively (negatively) correlated with value added. We then use the theory in Caliendo and Rossi-Hansberg (2011) to guide us through an exploration of changes in the wages and number of employees as a result of expansions in layers, output, or markets. The empirical results are consistent with the theory in a large number of dimensions. In particular, the effect of changes in size and export status on wages depends crucially on whether they trigger a change in organization. If they do not, wages rise, as previously documented in the literature, while, if they do, wages in all pre-existing layers fall.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 304.

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Date of creation: 2012
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Handle: RePEc:red:sed012:304
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  1. Maria Guadalupe & Julie Wulf, 2010. "The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 105-27, October.
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  3. Rasmus Lentz & Dale T. Mortensen, 2005. "An Empirical Model of Growth Through Product Innovation," NBER Working Papers 11546, National Bureau of Economic Research, Inc.
  4. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Journal of Economic Theory, Elsevier, vol. 146(1), pages 39-73, January.
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  8. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
  9. Lorenzo Caliendo & Esteban Rossi-Hansberg, 2012. "The Impact of Trade on Organization and Productivity," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1393-1467.
  10. Qian, Yingyi, 1994. "Incentives and Loss of Control in an Optimal Hierarchy," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 527-44, July.
  11. Bernard, A.B. & Jensen, J.B., 1994. "Exporters, Skill Upgrading, and the Wage Gap," Working papers 94-30, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Van Reenen, John & Caroli, Eve, 2001. "Skill-Biased Organizational Change? Evidence from a panel of British and French establishments," Economics Papers from University Paris Dauphine 123456789/10093, Paris Dauphine University.
  13. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  14. Bernard, A., 1997. "Exceptional Exporter Performance: Cause, Effect, or Both?," Working papers 97-21, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, 07.
  16. Guadalupe, Maria & Wulf, Julie, 2009. "The Flattening Firm and Product Market Competition," CEPR Discussion Papers 7253, C.E.P.R. Discussion Papers.
  17. Verhoogen, Eric A, 2007. "Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector," CEPR Discussion Papers 6385, C.E.P.R. Discussion Papers.
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