Optimal promotions of competing firms in a frictional labour market with organizational hierarchies

We study optimal promotion decisions of hierarchical firms, with one junior and one senior managerial position, which interact in a search and matching labour market. Workers acquire experience over time while being employed in a junior position and the firm has to determine the experience level at which the worker receives a promotion which allows her to fill a senior position. Promoted workers move to the senior position in their current firm, if it is vacant, otherwise they search for senior positions on the market. The promotion cut-offs of the competing firms exhibit strategic complementarity, but we show that generically a unique stable symmetric general equilibrium exists. We find that stronger competition among firms leads to later (earlier) promotions if the initial number of firms is small (large) giving rise to an inverse U-shape relationship. In the presence of two skill groups, stronger competition among firms reduces the importance of skill differences, so the gap in wages and promotion times decreases with the number of firms. The model is compatible with empirical evidence that high-skill workers are promoted faster than the low-skilled and that internal promotions are more frequent than cross-firm moves to a higher hierarchical position.     

A modified deferred acceptance algorithm for many-to-one matching markets with externalities among firms

We consider a many-to-one matching market with externalities among firms where each firm’s preferences satisfy substitutability, increasing choice and no external effect by unchosen workers, which are defined by  Bando (2012). We first illustrate that a sequential version of the deferred acceptance (DA) algorithm with worker-proposing may not find a worker-optimal quasi stable matching. Then, we provide a modified DA algorithm in which (i) each worker simultaneously proposes to his most preferred firm that has not rejected him and (ii) each firm chooses its acceptable workers from the cumulative set of workers who have ever proposed to it, assuming that the other workers proposing to its rival firms are hired. We show that this algorithm finds a worker-optimal quasi stable matching. We also show that this algorithm can be generalized into a fixed point algorithm.     

Simultaneous search with heterogeneous firms and ex post competition

In this paper we study the allocation of workers over high and low productivity firms in a labor market with coordination frictions. Specifically, we consider a search model where workers can apply to high and or low productivity firms. Firms that compete for the same candidate can increase their wage offers as often as they like. We show that if workers apply to two jobs, there is a unique symmetric equilibrium where workers mix between sending both applications to the high and sending both to the low productivity sector. But, efficiency requires that they apply to both sectors because a higher matching rate in the high-productivity sector can then be realized with fewer applications (and consequently fewer coordination frictions) if workers always accept the offer of the most productive firm. However, in the market the worker's payoff is determined by how much the firm with the second highest productivity is willing to bid. This is what prevents them from applying to both sectors. For many configurations, the equilibrium outcomes are the same under directed and random search so our results are not driven by random search. We discuss the effects of increasing the number of applications and show that our results can easily be generalized to N-firms.     

The effect of search frictions on wages

We aim to test whether the degree of informational search frictions in the labor market has a negative effect on wages. In a range of equilibrium search models of the labor market, this effect is predicted to be negative. Nevertheless, this has never been tested. We perform tests with matched worker–firm data. The worker data are informative on individual wages and labor market transitions, and this allows for estimation of the degree of search frictions. The firm data are informative on labor productivity. This allows us to investigate how the mean difference between labor productivity and wages in a market depends on the degree of frictions and other determinants, and to assess the quantitative relevance of frictions for wages.     

Worker poaching in a supply chain: Enemy from within?

Worker poaching represents the primary mode by which workers change employers. We examine worker poaching between firms linked in a value chain. We find that, in a value chain, the less productive firm may offer its workers higher wages and poach workers from the more productive firm. We also find that worker flows accomplished via poaching impact supply chain management: (a) the identity of the bottleneck firm may depend on whether poaching is available; (b) poaching between linked firms may benefit both, and (c) the value chain cannot be fully coordinated without controlling wages in the labor market.     

Zero-intelligence agents looking for a job

We study a simple agent-based model of a decentralized matching market game in which agents (workers or job seekers) make proposals to other agents (firms) in order to be matched to a position within the firm. The aggregate result of agents interactions can be summarised in the form of a Beveridge curve, which determines the relationship between unmatched agents, unemployed job seekers and vacancies in firms. We open the black box of matching technology, by modelling how agents behave (make proposals) according to their information perception. We observe more efficient results—in the form of a downward shift of the Beverage curve in the case of simple zero-intelligent agents. Our comparative statics indicate that market conditions, such as the heterogeneity of agents’ preferences, will also shift the Beveridge curve downwards. Moreover, market thickness affects movement along the Beverage curve. Movement right-down along the curve if there is an increasing number of agents compared to positions within firms. Furthermore, we show that frictions in re-matching, such as commitment to a match, could be another factor shifting the Beveridge curve toward the origin.     

Turnover and Knowledge Loss: An Examination of the Differential Impact of Production Manager and Worker Turnover in Service and Manufacturing Firms

This research examines the comparative effects of production manager and worker turnover in service and manufacturing settings. We suggest that, due to the centrality of human action in services and the ability of manufacturers to insulate the technical core, service and manufacturing companies are differentially dependent on and impacted by the loss of production manager and worker knowledge. The results from a survey of 150 service and manufacturing firms provide partial support for this notion and show that turnover impacts these organizations differently. More specifically, we find that: (1) the negative impact of production worker turnover on firm performance is greater in service settings than in manufacturing settings; and (2) the negative impact of production worker turnover on firm performance is greater than the impact of production manager turnover in service firms. In addition, our findings show that organizational capital moderates the turnover–performance relationship for production workers in service firms.     

Agreement toward stability in matching markets

For firms with responsive preferences, we prove that the set of stable matchings unanimously preferred by workers to any firm quasi-stable matching has a lattice structure. This follows from a generalization of the Decomposition Lemma. The result does not hold when firms have q-substitutable preferences. Nevertheless, we show that the set of stable matchings unanimously preferred by workers to a firm quasi-stable matching contains an element which is unanimously least preferred by workers, and most preferred by firms. When a firm quasi-stable matching is fed into our extension of the Deferred Acceptance algorithm (where firms propose), the existence of this matching guarantees the success of the algorithm.     

Wage differentials in the presence of unobserved worker,firm, and match heterogeneity

We consider the problem of estimating and decomposing wage differentials in the presence of unobserved worker, firm, and match heterogeneity. Controlling for these unobservables corrects omitted variable bias in previous studies. It also allows us to measure the contribution of unmeasured characteristics of workers, firms, and worker-firm matches to observed wage differentials. An application to linked employer-employee data shows that decompositions of inter-industry earnings differentials and the male-female differential are misleading when unobserved heterogeneity is ignored.     

Monotonic matching in search equilibrium

It is well-known from Becker’s [Becker, G., 1973. A theory of marriage, Part I. Journal of Political Economy 81, 813–846] analysis of the neoclassical marriage market that matching is positive assortative if agent-types are complements in household production. Shimer and Smith [Shimer, R., Smith, L., 2000. Assortative matching and search. Econometrica 68, 343–369] have shown that this result does not generally extend to markets with search frictions, and they provide additional conditions on the production function that guarantee assortative matching in these settings. Here, the relationship between the Shimer–Smith restrictions and equilibrium matching pattern is considered, and alternative proofs of their results on assortative matching are provided.     

Cash holding dynamics and competition intensity: Evidence from UK firms

Using a quasi-natural experiment and various measures of competition intensity, we examine whether an increase in product market competition is a key driver of firm cash holdings. We find that firms increase cash holdings when competition is intense. The results suggest that the degree of increase in cash holdings is magnified among firms exposed to high predatory threat and financing friction. In addition, we examine if increasing cash holdings offers a competitive advantage in the product market. Our results indicate that firms with large cash reserves make gains in market share at the expense of their rivals. Gains in the product market are more pronounced among firms with low exposure to predatory risk and financing frictions.     

Hiring Risky Workers: Some Evidence

Lazear recently suggested that firms that do not expect to live for a long time will hire only safe workers. Hence their worker turnover will be lower. In this paper we test this hypothesis using both the industry growth rate and industry-average age of establishments as measures of the horizon for a particular firm. We find mixed results, both at the industry level and at the establishment level. Establishments in growing industries do indeed exhibit higher churning flows, but a high average age of establishments reduces rather than increases churning.     

Life-cycle patterns in male/female differences in job search

We investigate whether women search longer for a job than men and whether these differences change over the life cycle. Our empirical analysis exploits German register data on highly attached displaced workers. We apply duration models to analyze gender differences in job search taking into account observed and unobserved worker heterogeneity and censoring. Simple survival functions show that displaced women take longer to find a new job than comparable men. Disaggregation by age groups reveals that these differences are driven by differential behavior of women in their prime-childbearing years. There is no significant difference in job search duration among the very young and older workers. These differential outcomes remain even after we control for differences in human capital and when unobserved heterogeneity is incorporated into the model.     

Misallocation,informality, and human capital: Understanding the role of institutions

The aim of this paper is to quantify the role of formal-sector institutions in shaping the demand for human capital and the level of informality. We propose a firm dynamics model where firms face capital market imperfections and costs of operating in the formal sector. Formal firms have a larger set of production opportunities and the ability to employ skilled workers, but informal firms can avoid the costs of formalization. These firm-level distortions give rise to endogenous formal and informal sectors and, more importantly, affect the demand for skilled workers. The model predicts that countries with a low degree of debt enforcement and high costs of formalization are characterized by relatively lower stocks of skilled workers, larger informal sectors, low allocative efficiency, and measured TFP. Moreover, we find that the interaction between entry costs and financial frictions (as opposed to the sum of their individual effects) is the main driver of these differences. This complementarity effect derives from the introduction of skilled workers, which prevents firms from substituting labor for capital and in turn moves them closer to the financial constraint.     

How do European firms adjust their labour costs when nominal wages are rigid?

Although workers' nominal wages are seldom cut, firms have multiple options available if they require adjustments in their wage bills. We broaden the analysis of relative (in)flexibility in labour costs by investigating the use of other margins of labour cost adjustment at the firm level beyond base wages. Using data from a unique survey, we find that European firms make extensive use of other components of compensation to adjust the cost of labour. Interestingly, firms facing base wage rigidity are more likely to use alternative margins of labour cost adjustment; therefore there appears to be some degree of substitutability between wage flexibility and the flexibility of other cost components. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. We also show how the margins of adjustment chosen are affected by unionisation and firm and worker characteristics.     

Managers and Wage Policies

Do individual top managers matter for wages and wage policies? Are there general differences in “style” among managers with respect to worker compensation? To shed light on these questions, we exploit a large panel dataset from Portugal that allows us to match workers, firms, and managers, and follow the movements of the latter across different firms over time. While accounting for the effect of worker and firm heterogeneity, we estimate the role of top manager fixed effects in determining wages and wage policies. The estimates suggest that (i) top managers have a significant influence on wages and wage policies; (ii) there exists different managerial “styles”; and (iii) managers’ (observable) attributes matter for worker compensation.     

Immigration and firm productivity: evidence from the Canadian Employer-Employee Dynamics Database

Previous studies on the impact of immigration on productivity in developed countries remain inconclusive, and most analyses are abstracted from firms where production actually takes place. This study examines the empirical relationship between immigration and firm-level productivity in Canada. It uses the Canadian Employer-Employee Dynamics Database that tracks firms over time and matches firms with their employees. The study finds that there is a positive association between changes in the share of immigrants in a firm and changes in firm productivity. This positive effect of immigration on firm productivity is small, but it is stronger over a longer period. The effect tends to be larger for low-skilled immigrants as compared with highly-skilled workers, as firm productivity growth is more strongly associated with changes in the share of recent immigrants (relative to established immigrants), and immigrants who intended to work in non-high skilled occupations (relative to immigrants who intended to work in high-skilled occupations). Those differences are more pronounced in technology-intensive and knowledge-based industries. Immigration is found to have little estimated effects on capital intensity in a firm. Finally, this study finds that high skill and lower skill immigrants have similar effects on average worker earnings arising from the positive productivity effect of immigration, but only skilled immigrants are associated with higher firm profits.

     

Performance Pay and Offshoring

In this paper, we construct a North–South general equilibrium model of offshoring, highlighting the nexus among endogenous effort‐based labor productivity and the structure of wages. Offshoring is modeled as international transfer of management practices and production techniques that allow Northern firms to design and implement performance compensation contracts. Performance–pay contracts address moral hazard issues stemming from production uncertainty and unobserved worker effort. We find that worker effort augments productivity and compensation of those workers assigned to more offshorable tasks. An increase in worker effort in the South, caused by a decline in offshoring costs, an increase in worker skill, or a decline in production uncertainty in the South, increases the range of offshored tasks and makes workers in the North and South better off. An increase in Southern labor force increases the range of offshored tasks, benefits workers in the North, and hurts workers in the South. International labor migration from low‐wage South to high‐wage North shrinks the range of offshored tasks, makes Northern workers worse off and Southern workers (emigrants and those left behind) better off. Higher worker effort in the North, caused by higher worker skills or lower degree of production uncertainty, decreases the range of offshored tasks and benefits workers in the North and South.