Delay Cost, Knowledge Hierarchy, and Wages

Cheng Chen and Wing Suen

No dp-279, Boston University - Department of Economics - The Institute for Economic Development Working Papers Series from Boston University - Department of Economics

Abstract: We provide a new approach to study optimal design of knowl- edge hierarchies under general assumptions. When problem-solving be- comes more urgent, employees at each level solve more complex problems and earn more. The organization structure becomes flatter, with fewer lay- ers but a larger span of control at each layer. Moreover, knowledge ac- quisition is disproportionately concentrated among lower level employees, which results in shrinking intra-firm wage differentials across layers. We find that labor productivity of the firm increases after delay becomes more costly, despite the direct output loss due to greater delay. Using Colom- bia plant-level data, we find that exporting firms—which face higher delay cost—have fewer layers, larger span of control, and pay higher wages at all levels.

Keywords: knowledge complementarity; delay and exporting; organization design; firm productivity; export-wage premium (search for similar items in EconPapers)
JEL-codes: D21 D23 F12 L22 L23 (search for similar items in EconPapers)
Pages: 35
New Economics Papers: this item is included in nep-mic
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