Firm Hierarchy and Wage Rigidity

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The main findings of this project can be summarized by the following graph:

Wage Cyclicality Summary

Here, “risks” are defined based on the cyclical responses of wage to aggregate fluctuations.

  • Production workers at single-layer firms are the most vulnerable, experiencing significant wage decreases during recessions but only minimal increases during economic booms.

  • Executives, on the contrary, enjoy substantial pay raises in prosperous times but endure little, if any, reduction during economic downturns.

  • Conventional wisdom suggests that workers benefit from moving to larger firms. However, this is not always true, because of interactions among workers within the same firm.

    • When the managerial workers are more powerful, wage changes at the bottom layer are more left-skewed