The Anatomy of French Production Hierarchies

We use a comprehensive dataset of French manufacturing firms to study their internal organization. We first divide the employees of each firm into layers using occupational characteristics. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. Dividing firms into a collection of hierarchical layers is useful for understanding their organization, as well as changes in their organization. We show that the probability of adding (dropping) a layer is very positively (negatively) correlated with value added. We then use the theory in Caliendo and Rossi-Hansberg (2011) to guide us through an exploration of changes in the wages and number of employees as a result of expansions in layers, output, or markets. The empirical results are consistent with the theory in a large number of dimensions. In particular, the effect of changes in size and export status on wages depends crucially on whether they trigger a change in organization. If they do not, wages rise, as previously documented in the literature, while, if they do, wages in all pre-existing layers fall.