The Bright Side of Corporate Diversification: Evidence from Internal Labor Markets
50 Pages Posted: 16 Mar 2011 Last revised: 17 May 2012
Date Written: May 16, 2012
We estimate the labor market consequences of corporate diversification using worker-firm matched data from the U.S. Census Bureau. We find evidence that workers in diversified firms have greater cross-industry mobility. Displaced workers experience significantly smaller losses when they move to a firm in a new industry in which their former firm also operates. We also find more active internal labor markets in diversified firms. Diversified firms exploit the option to redeploy workers internally from declining to expanding industries. Though diversified firms pay higher wages to retain workers, their labor is also more productive than focused firms of the same size, age, and industry. Overall, internal labor markets provide a bright side to corporate diversification.
Keywords: Diversification, Internal Labor Market
JEL Classification: G30, G34, J24, J31, J63
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