Working Paper: NBER ID: w30592
Authors: Jonas Hjort; Hannes Malmberg; Todd Schoellman
Abstract: This paper shows that large, multi-establishment business enterprises face a high cost of middle management in poor countries and that this cost inhibits the growth of the modern sector. We provide new empirical evidence using a database covering compensation for 300,000 middle managers working at modern firms in 146 countries. We estimate that the elasticity of real management costs with respect to real GDP per worker is 0.1. We quantify the importance of this finding using a calibrated appropriate technology model where firms choose whether to adopt the management-intensive modern business structure. Lower management costs in developing countries would increase the revenue share of the modern sector by 10-20 percentage points
Keywords: Middle Management; Labor Costs; Firm Structure; Economic Development
JEL Codes: J3; M11; O11; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| real GDP per worker (J89) | management costs (J30) |
| management costs (J30) | revenue share of the modern sector (E25) |
| management costs in developing countries (O22) | revenue share of the modern sector (E25) |
| number of nonprofit competitors (L39) | management costs (J30) |
| high relative cost of management in developing countries (O57) | adoption and spread of modern business enterprises (P12) |