Working Paper: CEPR ID: DP10993
Authors: Lorenzo Caliendo; Giordano Mion; Luca David Opromolla; Esteban Rossi-Hansberg
Abstract: The productivity of firms is, at least partly, determined by a firm's actions and decisions. One of these decisions involves the organization of production in terms of the number of layers of management the firm decides to employ. Using detailed employer-employee matched data and firm production quantity and input data for Portuguese firms, we study the endogenous response of revenue-based and quantity-based productivity to a change in layers: a firm reorganization. We show that as a result of an exogenous demand or productivity shock that makes the firm reorganize and add a management layer, quantity-based productivity increases by about 8%, while revenue-based productivity drops by around 7%. Such a reorganization makes the firm more productive, but also increases the quantity produced to an extent that lowers the price charged by the firm and, as a result, its revenue-based productivity.
Keywords: firm size; layers; managers; organization; productivity; TFP; wages
JEL Codes: D22; D24; F16; J24; J31; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exogenous demand or productivity shock (O49) | increase in the number of management layers (M54) |
| increase in the number of management layers (M54) | increase in quantity-based productivity (O49) |
| increase in the number of management layers (M54) | decrease in revenue-based productivity (O49) |
| negative shocks (F69) | decrease in management layers (M54) |
| decrease in management layers (M54) | decrease in quantity-based productivity (O49) |
| decrease in management layers (M54) | increase in revenue-based productivity (O49) |