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Exploiting Growth Opportunities:The Role of Internal Labor Markets

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  • Giacinta Cestone
  • Chiara Fumagalli
  • Francis Kramarz
  • Giovanni Pica

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 ffiliates’ 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. Keywords: Business Groups, Human Capital, Labor Market Frictions, Internal Labor Markets JEL Classification: G30, L22, J20

Suggested Citation

  • Giacinta Cestone & Chiara Fumagalli & Francis Kramarz & Giovanni Pica, 2023. "Exploiting Growth Opportunities:The Role of Internal Labor Markets," Working Papers 686, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • Handle: RePEc:igi:igierp:686
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    More about this item

    Keywords

    business groups; human capital; labor market frictions; internal labor markets jel classification: g30; l22; j20;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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