Firm Hierarchy and Wage Rigidity
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The main findings of this project can be summarized by the following graph:
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