Firm organization and productivity across locations

Grigorios Spanos (1, 2)

1 AMSE - Aix-Marseille Sciences Economiques
2 SDS - Univ Geneva, Dept Hist Econ & Soc, Sch Social Sci

This paper provides a new mechanism to explain variation in firm productivity across locations: variation in the internal organization of labor into hierarchical layers, which are associated with different responsibilities within the firm. To guide my analysis, I develop a theoretical model that yields two implications. First, firms in larger markets organize into a greater number of layers. Second, because they have more layers, firms in larger markets are more productive. I then use administrative data to examine the model’s implications across French employment areas and non-tradeable service industries that satisfy the model’s assumptions: Clothing and Shoe Retail, Traditional Restaurants, and Hair and Beauty Salons. The findings are consistent with the model. I also observe that 8.8% to 22.4% of the log productivity gains from denser areas arise from differences in the organization of firms. A separate analysis shows that results are similar across firms operating in the manufacturing sector.

Keywords: Firm organization; Heterogeneous firms; Market size; Density; Regional disparities; Wages; Firm productivity

Domains: Humanities and Social Sciences; Economics and Finance; Quantitative Finance [q-fin]

Grigorios Spanos. Firm organization and productivity across locations. Journal of Urban Economics, 2019, 112, pp.152-168. ⟨10.1016/j.jue.2019.05.006⟩. ⟨hal-02271020⟩