INTERNAL LABOR MARKETS AND INVESTMENT IN CONGLOMERATES

Rui Silva

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: The literature on conglomerates has focused on the misallocation of investments as the cause of the conglomerate discount. I study frictions in the internal labor market as a possible cause of misallocation of investments. Using detailed plant-level data, I document wage convergence in conglomerates: workersin low-wage industries collect higher-than-industry wages when the diversified rm is also present in high-wage industries (by 5.2%). I con rm this effect by exploiting a quasi-experiment involving the implementation of the NAFTA agreement that exogenously increases worker wages of exporting plants. I track the evolution of wages in non-exporting plants in diversi ed rms that also own exporting plants and nd a signi cant increase in wages of these plants relative to una liated non-exporting plants after the event. This pattern of wage convergence affects investments. Plants where workers collect higher-than-industry wages increase the capital-labor ratio in response to their higher labor cost -- and this response to higher wages is associated with higher investment in some divisions.

Pages: 62 pages
Date: 2013-05
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Citations: View citations in EconPapers (8)

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https://www2.census.gov/ces/wp/2013/CES-WP-13-26.pdf First version, 2013 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:13-26

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