The Anatomy of French Production Hierarchies

Journal of Political Economy, (2015) 123 (4): 809:852, joint with Ferdinando Monte and Esteban Rossi-Hansberg

Working paper versions:

NBER Working Paper No. 18259, 2012

CEPR Discussion Paper No. 9073, 2012

Cowles Foundation Discussion Paper No. 1867, 2012

Here is a link to the Online Appendix

Presentation Slides

Abstract

We use a comprehensive dataset of French manufacturing firms to study their internal organization. We first divide the employees of each firm into layers using occupational categories. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. In addition, the probability of adding/dropping a layer is very positively/negatively correlated with value added. We then explore the changes in the wages and number of employees that accompany expansions in layers, or output. The empirical results indicate that reorganization, through changes in layers, is key to understand how firms expand and contract. For example, we find that firms that expand substantially add layers and pay lower average wages, in part by hiring less experienced employees, in all pre-existing layers. In contrast, firms that expand little and do not reorganize pay higher average wages in all pre-existing layers, partly by hiring more educated employees.

Caliendo, Lorenzo, Ferdinando, Monte, and Esteban Rossi-Hansberg, (2015), “The Anatomy of French Production Hierarchies,” Journal of Political Economy, 123 (4): 809:852.