Working Paper: CEPR ID: DP18552
Authors: Carsten Eckel; Stephen Yeaple
Abstract: A growing empirical literature attributes much of the productivity advantages of large, "superstar" firms to their adoption of best practice management techniques that allow them to better identify and use talented workers. The reasons for the incomplete adoption of these "structured management practices" and their welfare implications are not well understood. This paper provides a positive and normative analysis of these issues in a theoretical framework in which structured management practices induce sorting of talent across firms. Incomplete adoption arises because worker talent is in limited supply. In equilibrium there is excessive adoption of structured management practices and too much sorting of talented workers into large firms. In this second-best environment, policy changes that favor large firms, such as trade liberalization, have the potential to lower welfare.
Keywords: Misallocation; Productivity; Welfare; Wage Inequality; International Trade; Labor Market Imperfections
JEL Codes: F12; F16; J31; J33; J42; M51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| structured management practices (L23) | sorting of talented workers (J68) |
| sorting of talented workers (J68) | higher productivity (O49) |
| structured management practices (L23) | higher productivity (O49) |
| incomplete adoption of management practices (L33) | misallocation of labor (J29) |
| misallocation of labor (J29) | lower overall welfare (D69) |
| misallocation of labor (J29) | excessive entry of adopting firms (G34) |
| excessive entry of adopting firms (G34) | too few varieties in the market (L15) |
| trade liberalization (F13) | misallocation of labor (J29) |
| lower average wage structure (J31) | lower marginal productivity of workers in non-adopting firms (J79) |