Productivity and Organization in Portuguese Firms

Lorenzo Caliendo, Giordano Mion, Luca David Opromolla, Esteban Rossi-Hansberg

NBER Working Paper No. 21811
Issued in December 2015, Revised in April 2018
NBER Program(s):International Trade and Investment

The productivity of firms is, at least partly, determined by a firm’s actions and decisions. One of these decisions involves the organization of production in terms of the number of layers of management the firm decides to employ. Using detailed employer-employee matched data and firm production quantity and input data for Portuguese firms, we study the endogenous response of revenue-based and quantity-based productivity to a change in layers: a firm reorganization. We show that as a result of an exogenous demand or productivity shock that makes the firm reorganize and add a management layer, quantity- based productivity increases by about 8%, while revenue-based productivity drops by around 7%. Such a reorganization makes the firm more productive, but also increases the quantity produced to an extent that lowers the price charged by the firm and, as a result, its revenue-based productivity.

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Document Object Identifier (DOI): 10.3386/w21811

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