Trade in Tasks and the Organization of Firms

53 Pages Posted: 27 May 2015

See all articles by Dalia Marin

Dalia Marin

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Jan Schymik

Ludwig Maximilian University of Munich (LMU)

Alexander Tarasov

Ludwig Maximilian University of Munich (LMU)

Date Written: May 2015

Abstract

We incorporate trade in tasks à la Grossman and Rossi-Hansberg (2008) into a small open economy version of the theory of firm organization of Marin and Verdier (2012) to examine how offshoring affects the way firms organize. We show that the offshoring of production tasks leads firms to reorganize with a more decentralized management, improving the competitiveness of the offshoring firms. We show further that the offshoring of managerial tasks relaxes the constraint on managers but toughens competition, and thus has an ambiguous impact on the level of decentralized management and CEO wages of the offshoring firms. In sufficiently open economies, however, managerial offshoring unambiguously leads to more decentralized management and to larger CEO wages. We test the predictions of the model based on original firm level data we designed and collected of 660 Austrian and German multinational firms with 2200 subsidiaries in Eastern Europe. We find that offshoring firms are 33.4% more decentralized than non-offshoring firms. We find further that the average fraction of managers offshored reduces the level of decentralized management by 3.1%, but increases the level of decentralized management by 4% in industries with a level of openness above the 25th percentile of the openness distribution. Lastly, we find that one additional offshored manager lowers CEO wages relative to workers by 4.9%.

Keywords: CEO pay, international trade with endogenous organizations, multinational firms, the rise of human capital, theory of the firm

JEL Classification: D23, F12, F14, L22

Suggested Citation

Marin, Dalia and Schymik, Jan and Tarasov, Alexander, Trade in Tasks and the Organization of Firms (May 2015). CEPR Discussion Paper No. DP10626, Available at SSRN: https://ssrn.com/abstract=2610762

Dalia Marin (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany
+49 89 2180 2446 (Phone)
+49 89 2180 6227 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jan Schymik

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Alexander Tarasov

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

HOME PAGE: http://www.iwb.vwl.uni-muenchen.de/personen/assistenten/tarasov/index.html

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