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Exploiting Growth Opportunities: The Role of Internal Labor Markets

Cestone, G., Fumagalli, C., Kramarz, F. & Pica, G. (2022). Exploiting Growth Opportunities: The Role of Internal Labor Markets. The Review of Economic Studies,

Abstract

We explore how business groups use internal labor markets (ILMs) in response to changing economic conditions. We show that following the exit of a large industry competitor, groupaffiliated firms expand and gain market share by increasing their reliance on the ILM to ensure swift hiring, especially of technical managers and skilled blue collar workers. The ability to take advantage of this shock to growth opportunities is greater in firms with closer access to their affiliates’ human capital, as geographical proximity facilitates employee relocations across units. Overall, our findings point to the ILM as a prominent mechanism making affiliation with a business group valuable at times of change. For the ILM to perform its role in the face of industry shocks, group sectoral diversification must be combined with geographical proximity between affiliates.

Publication Type: Article
Additional Information: This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of Economic Studies following peer review. The version of record will be available online at: https://academic.oup.com/restud
Publisher Keywords: Business Groups, Human Capital, Labor Market Frictions, Internal Labor Markets
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Departments: Bayes Business School > Finance
[img] Text - Accepted Version
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