Hierarchy, French Style

30 July 2012 at 7:44 am 1 comment

| Peter Klein |

The French love hierarchy, right? Well, yes, but all hierarchies are not alike. Here’s a comoprehensive study of French manufacturing firms:

The Anatomy of French Production Hierarchies
Lorenzo Caliendo, Ferdinando Monte, Esteban Rossi-Hansberg
NBER Working Paper No. 18259, July 2012

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, output, or markets (by becoming exporters). 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 all pre-existing layers. In contrast, firms that expand little and do not reorganize pay higher average wages in all pre-existing layers.

Entry filed under: - Klein -, Strategic Management, Theory of the Firm.

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1 Comment Add your own

  • 1. mikemarotta  |  1 August 2012 at 9:42 am

    The summary seems to be that some firms invest more in their existing employees while others jettison the experience (and wisdom) of seniority to take on the innovations (and lower pay) of youth. Attempting to predict which of either – or which mix in what proportion – is ideal for a firm may be an entrepreneurial talent, rather than a learnable skill. And the only determination may wait in the future after which hindsight explains the event.

    The very word “hierarchy” speaks of a priesthood. We accept that the young postulate or acolyte has only a vague enthusiasm for grandeur and a sense of awe for mystery. Practice and discipline allow useful exploration and profitable discovery. If a firm can have too many “masters,” then, surely, it can have too many “grasshoppers.” Each needs the other for balance.

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