Flattening Firms and Wage Distribution ^☆

Abstract

This chapter studies the consequences of firm delayering on wages and the wage distribution inside firms. I consider a market-based tournament model with asymmetric information to endogenize firms’ delayering decisions. My model predicts that when the CEO becomes more productive, firms grow in size. When the CEO becomes sufficiently productive, firms delayer. After delayering, wages at all levels rise and the wage gap between the CEO and the laborers widens. These predictions capture the dynamic process of firms’ structure and size changes and match a set of empirical findings in recent studies that are not well explained by existing theories.

Citation

Jin, X. (2018), "Flattening Firms and Wage Distribution ^☆ ", Transitions through the Labor Market (Research in Labor Economics, Vol. 46), Emerald Publishing Limited, Leeds, pp. 107-126. https://doi.org/10.1108/S0147-912120180000046004