Spatial Wage Differentials, Geographic Frictions and the Organization of Labor within Firms

63 Pages Posted: 10 Sep 2020

See all articles by Camilo Acosta

Camilo Acosta

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF)

Ditte Hakonsson Lyngemark

affiliation not provided to SSRN

Date Written: June 7, 2020

Abstract

This paper studies the spatial structure of firms, both theoretically and empirically. Two new facts in Danish register data motivate the analysis. First, firms have become more fragmented over time. Second, headquarters (HQ) establishments have become more manager intensive, despite a significant increase in managerial wages at HQ locations. We study the roles of exogenous changes in wages across locations and communication costs in explaining these two trends. Immigration shocks are the source of identifying variation for changes in relative labor supply. Estimates indicate that increases in the wage of managers at the HQ relative to non-HQ, explain 50% of the increase in HQ managerial intensity. This can be explained by the associated increasing demand for headquarter services as satellite establishments become larger. Simulations suggest that wider wage gaps across locations can also lead to more establishments per firm, and this effect strengthens as communication costs fall.

Keywords: spatial organization, multi-establishment firms, firm fragmentation, communication, agglomeration

JEL Classification: J23, L22, L23, R00, R30

Suggested Citation

Acosta Mejia, Camilo and Lyngemark, Ditte Hakonsson, Spatial Wage Differentials, Geographic Frictions and the Organization of Labor within Firms (June 7, 2020). Available at SSRN: https://ssrn.com/abstract=3664082 or http://dx.doi.org/10.2139/ssrn.3664082

Camilo Acosta Mejia (Contact Author)

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF) ( email )

Carrera 49 No. 7 South - 50
Medellin
Colombia

Ditte Hakonsson Lyngemark

affiliation not provided to SSRN

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