1/ 🚨 New working paper! 🚨 We investigate a novel determinant of labor market power: a firm's product scope. Do multiproduct firms (MPFs) pay lower wages than single-product firms (SPFs)? A 🧵 on our key findings. - ThreadSky

michaelirlacher.bsky.social • 18 days ago

1/ 🚨 New working paper! 🚨 We investigate a novel determinant of labor market power: a firm's product scope. Do multiproduct firms (MPFs) pay lower wages than single-product firms (SPFs)? A 🧵 on our key findings.

Reposted from JKU Department of Economics

📢 Here is the latest JKU Linz Econ Working Paper:
"Wage Setting in Multiproduct Firms"
by Chan, Irlacher (@michaelirlacher.bsky.social), Koch, and Macedoni

Link: ideas.repec.org/p/jku/econwp...
#EconSky

Comments

michaelirlacher.bsky.social•18 days ago

2/ The rise of superstar firms has reshaped production & labor markets, driving up markups and pushing down labor’s share of income. But firms don’t just grow bigger—they also expand their scope by producing more products. What does this mean for wages?

michaelirlacher.bsky.social•18 days ago

3/ Using Danish administrative data, we document a striking fact: MPFs have a significantly lower labor share than SPFs—by 10-15 percentage points on average! Even among firms of similar size, MPFs have on average a lower labor share than SPFs.

michaelirlacher.bsky.social•18 days ago

4/ Digging deeper, we analyze firm-level wage-setting behavior. Controlling for an extensive set of fixed effects, including worker and firm fixed effects, we find that a broader product range is associated with a negative wage elasticity. In other words, firms with more products pay lower wages!

michaelirlacher.bsky.social•18 days ago

5/ This finding for a wage discount from product scope is unexpected and novel, contrasting with the wage premia associated with, for instance, firm size and export activity. The wage elasticity with respect to scope mirrors the magnitude of the firm-size wage premium, albeit with the opposite sign.

michaelirlacher.bsky.social•18 days ago

6/ To explain this, we develop a discrete choice model which provides a micro-foundation linking a firm’s product scope to its labor market power. Workers are assigned to a specific product line and each worker-product pairing is characterized by a unique wage and amenity that generate utility.

michaelirlacher.bsky.social•18 days ago

7/ The key insight of our model is that MPFs provide workers with the opportunity to switch to a different product line for a better fit. Consequently, a worker’s expected utility in an MPF is higher than in an SPF, where switching necessitates moving to a different firm altogether.

Comments

Posting Rules

Reply