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Internal Labor Markets, Wage Convergence, and Investment

Published online by Cambridge University Press:  14 September 2020

Rui C. Silva Open the ORCID record for Rui C. Silva [Opens in a new window]
Rui C. Silva*
Affiliation:
Nova School of Business and Economics and [email protected]
*
[email protected] (corresponding author)
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Abstract

I document wage convergence in conglomerates using detailed plant-level data: Workers in low-wage industries collect higher-than-industry wages when the diversified firm also operates in high-wage industries. I confirm this effect by exploiting the implementation of the North American Free Trade Agreement (NAFTA) and changes in minimum wages at the state level as sources of exogenous increases in wages in some plants. I then track the evolution of wages of the remaining workers of the firm, relative to workers of unaffiliated plants. Plants where workers collect higher-than-industry wages operate with higher capital intensity, suggesting that internal labor markets may affect investment decisions in internal capital markets.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 4 , June 2021 , pp. 1192 - 1227
Copyright
© THE AUTHOR(S), 2020. PUBLISHED BY CAMBRIDGE UNIVERSITY PRESS ON BEHALF OF THE MICHAEL G. FOSTER SCHOOL OF BUSINESS, UNIVERSITY OF WASHINGTON

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Footnotes

I am indebted to my thesis committee, Gary Becker, Raghuram Rajan, Amit Seru, Liu Yang (the referee), and Luigi Zingales for extremely valuable comments, discussions, encouragement, and support. Additionally, I greatly benefitted from discussions with Philip Berger, João Cocco, Alex Edmans, Anil Kashyap, Gregor Matvos, Canice Prendergast, Henri Servaes, Margarida Soares, Denis Sosyura, Amir Sufi, and Robert Vishny and seminar participants at Aarhus University, Católica Lisbon, the University of Chicago (Economics Department and Booth School of Business), Columbia Business School, the Einaudi Institute for Economics and Finance (EIEF), the Federal Reserve Board, Harvard Business School, the University of Illinois at Urbana–Champaign, INSEAD, London Business School, London School of Economics, Nova School of Business and Economics, New York University Stern School of Business, Ross School of Business, the Toulouse School of Economics, Washington University in St. Louis, and the Wharton School. A special thank you is due to Chad Syverson and Ali Hortaçsu for access to the data used in this article. Any opinions and conclusions expressed herein are those of the author and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. All remaining errors are mine.

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