Corporate Hierarchies Under Employee Representation

43 Pages Posted: 21 Sep 2020 Last revised: 28 Nov 2024

See all articles by Filippo Belloc

Filippo Belloc

University of Siena - Department of Economics and Statistics

Gabriel Burdin

University of Leeds - Faculty of Business; IZA Institute of Labor Economics

Fabio Landini

University of Parma

Abstract

This paper analyzes whether workplace employee representation (ER) affects the design of firm hierarchies. We rationalize the role of ER within a knowledge-based model of hierarchies, where the firm's choice of hierarchical layers depends on the trade-off between communication and knowledge acquisition costs. Using a sample of more than 20000 private-sector workplaces in 32 countries, we document conditional correlations between ER and the depth of hierarchy that are consistent with our framework. The presence of ER is positively associated with the number of organizational layers, though the relationship is tempered by firm size. Additional instrumental variable estimates reinforce our main result. ER positively correlates with job training and skill development, suggesting that the effect of ER (if any) is to reduce knowledge costs. Moreover, ER is associated with enhanced internal communication via staff meetings. The analysis of managers' perceptions suggests the higher frequency of meetings in firms with ER does not lead to more delays in the implementation of organizational changes. Taken together, our findings suggest that ER increases the depth of firm hierarchy by facilitating the flow of information to top decision makers, possibly through skip-level reporting, and hence reducing communication costs.

Keywords: employee representation, firm hierarchy, organization, European Company Survey

JEL Classification: J51, L23, M11

Suggested Citation

Belloc, Filippo and Burdin, Gabriel and Landini, Fabio, Corporate Hierarchies Under Employee Representation. IZA Discussion Paper No. 13717, Available at SSRN: https://ssrn.com/abstract=3695418

Filippo Belloc (Contact Author)

University of Siena - Department of Economics and Statistics ( email )

Piazza San Francesco 7
Siena, Siena 53100
Italy

Gabriel Burdin

University of Leeds - Faculty of Business ( email )

Leeds LS2 9JT
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Fabio Landini

University of Parma ( email )

Parma
Italy

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