On the Reform of a Firm’s Hierarchical Workplace

Gerard Pfann1, Ben Kriechel 1
1Maastricht University, The Netherlands, 2IZA, Germany

In this paper we study the joint decision process of changing the structure of jobs and laying off individual workers in a firm that downsizes its workforce. A hierarchical decision model is derived and estimated using personnel data from a firm in demise comparing the characteristics of the individual workers and the structure of the firm’s labor force before and after its reorganization. Authority of the top and lower management was increased while the authority of the middle management was diminished. This non-monotonic change in the structure of jobs is shown to be due to the firm’s compound response to innovations and transaction costs. These findings motivate the development of richer theoretical models of management structure and assignment to help explain the dynamic structural changes of a firm’s workforce.

View full paper