Arbitraging Labor Markets

71 Pages Posted: 5 Jul 2024 Last revised: 12 Nov 2024

See all articles by Minrui Gong

Minrui Gong

University of Mannheim

Ernst G. Maug

University of Mannheim Business School; European Corporate Governance Institute (ECGI)

Christoph Schneider

University of Münster - Finance Center Münster

Date Written: July 4, 2024

Abstract

In this paper we develop a new rationale for the existence of business groups (BGs) and conglomerates that operate in multiple locations within the same country: They arbitrage local labor markets. We show that BG firms grow less if firms of the same group in other locations can offer more attractive access to employees in their local labor market. On the flip side BG firms grow faster if they offer such access to other firms in the group. Attractiveness is measured as labor costs, labor supply, and labor fit between the firm and the local labor force. Local labor conditions are of similar importance for location decisions of business group firms as general agglomeration economies. Internal flows of employees between BG firms account for only a small portion of the variation in employment growth rates. We conclude that business groups predominantly move jobs, but not employees, between their locations. As such, they arbitrage local labor markets.

Keywords: Business groups, location, employment, internal labor markets

JEL Classification: G30, G34, J21, J24, J61, M51

Suggested Citation

Gong, Minrui and Maug, Ernst G. and Schneider, Christoph, Arbitraging Labor Markets (July 4, 2024). European Corporate Governance Institute – Finance Working Paper No. 997/2024, Available at SSRN: https://ssrn.com/abstract=4885764 or http://dx.doi.org/10.2139/ssrn.4885764

Minrui Gong (Contact Author)

University of Mannheim ( email )

Ernst G. Maug

University of Mannheim Business School ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181-1952 (Phone)

HOME PAGE: http://cf.bwl.uni-mannheim.de/de/people/maug/

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Christoph Schneider

University of Münster - Finance Center Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

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