INTERNAL LABOR MARKETS AND INVESTMENT IN CONGLOMERATES
May 2013
Working Paper Number:
CES-13-26
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.
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investment,
market,
economist,
macroeconomic,
export,
corporate,
employ,
employed,
labor,
recession,
conglomerate,
economically,
industry wages,
invest,
wages production,
wage industries,
labor markets,
union
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Federal Reserve Bank,
University of Chicago,
Current Population Survey,
Longitudinal Business Database,
Bureau of Labor,
North American Free Trade Agreement,
Auxiliary Establishment Survey,
Census of Manufacturing Firms
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