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Firm Organization and Information Technology: Micro and Macro Implications

Author

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  • Asier Mariscal

    (U.Carlos III-Madrid)

Abstract
The last 30 years in the US have seen: i- A rise in inequality with flat wages at the bottom of the wage distribution, ii-A reduction in the labor share (LS) of national income and, iii-A notable decline in the price of Information Technology (IT) capital. I show these facts can be rationalized with optimal capital choices of firms organized as hierarchies. The theory is consistent with capital-labor complementarity, for each skilled and unskilled labor, as in the data. In the model, cheaper IT capital enables faster managerial problem solving, and reallocates knowledge and wages away from the low levels of the hierarchy towards the higher ones. Larger firms use more IT capital, over time they reduce their marginal cost and expand more than smaller firms, hence capturing a larger share of aggregate value added. In the quantitative section, I discipline the model with firm-level moments and explain key features of firm organization. As firm value added increases there is 1-a lower LS of production costs, 2- a higher capital-labor ratio, and 3-higher wages conditional on the numbers of layers. Within a firm, as IT prices fall: 4- wage declines at low layers and increases at top layers, 5-increasing employment shares of managers; and, at the aggregate level, as a share of GDP: 6-increasing LS for managers, 7-declining LS for plant-level workers. Finally, the model explains: 8- the decline in the LS of value added of large firms, and 9-the decline in the aggregate LS. The last two results require both IT price declines and increasing mark-ups, the latter smaller than in recent demand-based explanations.

Suggested Citation

  • Asier Mariscal, 2018. "Firm Organization and Information Technology: Micro and Macro Implications," 2018 Meeting Papers 1076, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:1076
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    Cited by:

    1. Duernecker, Georg & Sanchez-Martinez, Miguel, 2023. "Structural change and productivity growth in Europe — Past, present and future," European Economic Review, Elsevier, vol. 151(C).
    2. Anna Gumpert & Henrike Steimer & Manfred Antoni, 2022. "Firm Organization with Multiple Establishments [“Organizing Offshoring: Middle Managers and Communication Costs]," The Quarterly Journal of Economics, Oxford University Press, vol. 137(2), pages 1091-1138.
    3. Maarten de Ridder, 2022. "Market power and innovation in the intangible economy," POID Working Papers 064, Centre for Economic Performance, LSE.
    4. Alessandro Sforza, 2020. "Shocks and the Organization of the Firm: Who Pays the Bill?," CESifo Working Paper Series 8084, CESifo.
    5. Anna Gumpert & Henrike Steimer & Manfred Antoni, 2023. "Firm Organization with Multiple Establishments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(2), pages 1091-1138.
    6. De Ridder, Maarten, 2024. "Market power and innovation in the intangible economy," LSE Research Online Documents on Economics 120285, London School of Economics and Political Science, LSE Library.

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