Firm Size, Productivity, and Manager Wages: A Job Assignment Approach

Volker Grossmann

The B.E. Journal of Theoretical Economics, 2007, vol. 7, issue 1, 41

Abstract: Ability of managers and other nonproduction professionals is key for the productivity of firms. Hence, the assignment of heterogeneous nonproduction workers across firms determines the distribution of productivity. In turn, the transmission of productivity differences into profit differences -- resulting from product market competition -- determines firms' willingness to pay for higher managerial skills. This paper explores the equilibrium assignment of nonproduction workers across ex ante identical firms which results from this interaction between product market and the market for nonproduction skills. The analysis suggests that, typically, large and productive firms coexist with small, low-productivity firms. Consistent with empirical evidence, a skewed distribution of firm size tends to arise. Moreover, the model predicts a positive relationship of firm size to productivity, manager quality, and manager remuneration. Finally, according to comparative-static analysis, higher intensity of product market competition can account for increases in the compensation at the top of the wage distribution.

Keywords: asymmetric equilibrium; firm size; job assignment; manager wages; productivity (search for similar items in EconPapers)
Date: 2007
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.2202/1935-1704.1321 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejtec:v:7:y:2007:i:1:n:8

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejte/html

DOI: 10.2202/1935-1704.1321

Access Statistics for this article

The B.E. Journal of Theoretical Economics is currently edited by Burkhard C. Schipper

More articles in The B.E. Journal of Theoretical Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().