DP10993 Productivity and Organization in Portuguese Firms

Author(s): Lorenzo Caliendo, Giordano Mion, Luca David Opromolla, Esteban Rossi-Hansberg
Publication Date: December 2015
Keyword(s): firm size, layers, managers, organization, productivity, TFP, wages
JEL(s): D22, D24, F16, J24, J31, L23
Programme Areas: Labour Economics, Industrial Organization, International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10993

The productivity of firms is, at least partly, determined by a firm’s 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 4%, while revenue-based productivity drops by more than 4%. 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.