Economic Development According to Chandler

Niklas Engbom, Hannes Malmberg, Tommaso Porzio, Federico Rossi and Todd Schoellman
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Niklas Engbom: NYU – Stern
Hannes Malmberg: Minnesota
Tommaso Porzio: Columbia
Federico Rossi: University of Warwick
Todd Schoellman: Minneapolis Fed

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Chandler (1977) shows that large firms require hierarchies of white-collar workers to coordinate complex production. We document that this insight continues to hold globally today, and we show that low education levels in developing countries limit the supply of white-collar workers and constrain firm size. We extend the occupational choice model of Lucas (1978) to allow entrepreneurs to reorganize their firms by allocating administrative tasks to hired professionals, which brings the firm closer to constant returns to scale. We calibrate the model to be consistent with cross-sectional microdata and validate it using quasi-experimental and experimental evidence on the effects of educational expansions and management training interventions. Skills explain two-thirds of the reorganization of production into large firms with economic development, while structural transformation and reductions in barriers are needed to explain the remaining shift

Keywords: skills; white-collar workers; returns to scale; firm size; endogenous duality (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1591

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