Productivity and Organization in Portuguese Firms
joint with Giordano Mion, Luca D. Opromolla, and Esteban Rossi-Hansberg
Abstract
The productivity of firms is, at least partly, determined by a firms actions and decisions. One of these decisions involves the organization of production in terms of the number of layers of management the firm decides to employ. Using detailed employer-employee matched data and firm production quantity and input data for Portuguese firms’ we study the endogenous response of revenue-based and quantity-based productivity to a change in layers: a firm reorganization. We show that as a result of an exogenous demand or productivity shock that makes the firm reorganize and add a management layer, quantity based productivity increases by about 8%, while revenue-based productivity drops by around 7%. Such a reorganization makes the firm more productive, but also increases the quantity produced to an extent that lowers the price charged by the firm and, as a result, its revenue-based productivity.