Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/aah/aarhec/2013-02.html
   My bibliography  Save this paper

Performance, Career Dynamics, and Span of Control

Author

Listed:
  • Valerie Smeets

    (Department of Economics and Business, Aarhus University)

  • Michael Waldman

    (Johnson Graduate School of Management, Cornell University)

  • Frederic Warzynski

    (Department of Economics and Business, Aarhus University)

Abstract
There is an extensive theoretical literature based on what is called the scale-of-operations effect, i.e., the idea that the return to managerial ability is higher the more resources the manager influences with his or her decisions. This idea leads to various testable predictions including that higher ability managers should supervise more subordinates, or equivalently, have a larger span of control. And although some of this theory’s predictions have been empirically investigated, there has been little systematic investigation of the theory’s predictions concerning span of control. In this paper we first extend the theoretical literature on the scale-of-operations effect to allow firms’ beliefs concerning a manager’s ability to evolve over the manager’s career, where much of our focus is the determinants of span of control. We then empirically investigate testable predictions from this theoretical analysis using a unique single firm dataset that contains detailed information concerning the reporting relationships at the firm. Our investigation provides strong support both for the model’s predictions concerning wages, wage changes, and probability of promotion, and also for the model’s predictions concerning span of control including predictions derived from the learning component of the model. Overall, our investigation supports the notion that the scale-of-operations effect and additionally learning are important determinants of the internal organization of firms including span of control.

Suggested Citation

  • Valerie Smeets & Michael Waldman & Frederic Warzynski, 2013. "Performance, Career Dynamics, and Span of Control," Economics Working Papers 2013-02, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2013-02
    as

    Download full text from publisher

    File URL: https://repec.econ.au.dk/repec/afn/wp/13/wp13_02.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thomas N Hubbard & Luis Garicano, 2003. "Specialization, Firms, and Markets: The Division of Labor Within and Between Law Firms," Working Papers 03-13, Center for Economic Studies, U.S. Census Bureau.
    2. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    3. Antti Kauhanen & Sami Napari, 2012. "Career and Wage Dynamics: Evidence from Linked Employer-Employee Data," Research in Labor Economics, in: Research in Labor Economics, pages 35-76, Emerald Group Publishing Limited.
    4. Lisa B. Kahn, 2013. "Asymmetric Information between Employers," American Economic Journal: Applied Economics, American Economic Association, vol. 5(4), pages 165-205, October.
    5. Maria Guadalupe & Julie Wulf, 2010. "The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 105-127, October.
    6. Stephanie Lluis, 2005. "The Role of Comparative Advantage and Learning in Wage Dynamics and Intrafirm Mobility: Evidence from Germany," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 725-768, October.
    7. Yingyi Qian, 1994. "Incentives and Loss of Control in an Optimal Hierarchy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 527-544.
    8. Jed DeVaro & Michael Waldman, 2012. "The Signaling Role of Promotions: Further Theory and Empirical Evidence," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 91-147.
    9. Robert Gibbons & John Roberts, 2012. "The Handbook of Organizational Economics," Economics Books, Princeton University Press, edition 1, volume 1, number 9889.
    10. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-715, September.
    11. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
    12. Thomas J. Dohmen & Ben Kriechel & Gerard A. Pfann, 2004. "Monkey bars and ladders: The importance of lateral and vertical job mobility in internal labor market careers," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(2), pages 193-228, June.
    13. Treble, John & van Gameren, Edwin & Bridges, Sarah & Barmby, Tim, 2001. "The internal economics of the firm: further evidence from personnel data," Labour Economics, Elsevier, vol. 8(5), pages 531-552, December.
    14. Jed DeVaro & Hodaka Morita, 2013. "Internal Promotion and External Recruitment: A Theoretical and Empirical Analysis," Journal of Labor Economics, University of Chicago Press, vol. 31(2), pages 227-269.
    15. Jeremy T. Fox, 2009. "Firm-Size Wage Gaps, Job Responsibility, and Hierarchical Matching," Journal of Labor Economics, University of Chicago Press, vol. 27(1), pages 83-126, January.
    16. Smeets, Valerie & Warzynski, Frederic, 2008. "Too many theories, too few facts? What the data tell us about the link between span of control, compensation and career dynamics," Labour Economics, Elsevier, vol. 15(4), pages 687-703, August.
    17. Joshua C. Pinkston, 2009. "A Model of Asymmetric Employer Learning with Testable Implications," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(1), pages 367-394.
    18. Arngrim Hunnes, 2012. "Testing the role of comparative advantage and learning in wage and promotion dynamics," International Journal of Manpower, Emerald Group Publishing Limited, vol. 33(5), pages 556-582, August.
    19. Garicano, Luis & Hubbard, Thomas N, 2007. "Managerial Leverage Is Limited by the Extent of the Market: Hierarchies, Specialization, and the Utilization of Lawyers' Human Capital," Journal of Law and Economics, University of Chicago Press, vol. 50(1), pages 1-43, February.
    20. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
    21. Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437, Elsevier.
    22. Joshua C. Pinkston, 2009. "A Model of Asymmetric Employer Learning with Testable Implications," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 367-394.
    23. Michael Waldman, 2012. "Theory and Evidence in Internal LaborMarkets [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    24. Seltzer, Andrew & Merrett, David T, 2000. "Personnel Policies at the Union Bank of Australia: Evidence from the 1888-1900 Entry Cohorts," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 573-613, October.
    25. Uta Schönberg, 2007. "Testing for Asymmetric Employer Learning," Journal of Labor Economics, University of Chicago Press, vol. 25(4), pages 651-691.
    26. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    27. Thomas N. Hubbard, 2009. "Specialization, Firms, and Markets: The Division of Labor within and between Law Firms," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 25(2), pages 339-371, October.
    28. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    29. Michael Waldman, 1984. "Worker Allocation, Hierarchies and the Wage Distribution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 95-109.
    30. Lima, Francisco & Pereira, Pedro T., 2001. "Careers and Wage Growth within Large Firms," IZA Discussion Papers 336, Institute of Labor Economics (IZA).
    31. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-880, June.
    32. Bruce C. Greenwald, 1986. "Adverse Selection in the Labour Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 325-347.
    33. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75(4), pages 352-352.
    34. Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organization and Inequality in a Knowledge Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1383-1435.
    35. James L. Medoff & Katharine G. Abraham, 1981. "Are Those Paid More Really More Productive? The Case of Experience," Journal of Human Resources, University of Wisconsin Press, vol. 16(2), pages 186-216.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guido Friebel & Matthias Heinz & Nikolay Zubanov, 2022. "Middle Managers, Personnel Turnover, and Performance: A Long‐Term Field Experiment in a Retail Chain," Management Science, INFORMS, vol. 68(1), pages 211-229, January.
    2. Jed DeVaro & Oliver Gürtler, 2020. "Strategic shirking in competitive labor markets: A general model of multi‐task promotion tournaments with employer learning," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(2), pages 335-376, April.
    3. Edward P. Lazear & Kathryn L. Shaw & Christopher T. Stanton, 2015. "The Value of Bosses," Journal of Labor Economics, University of Chicago Press, vol. 33(4), pages 823-861.
    4. Auriol, Emmanuelle & Friebel, Guido & von Bieberstein, Frauke, 2016. "The firm as the locus of social comparisons: Standard promotion practices versus up-or-out," Journal of Economic Behavior & Organization, Elsevier, vol. 121(C), pages 41-59.
    5. Jin, Xin, 2014. "Flattening Firms and Wage Distribution," MPRA Paper 58485, University Library of Munich, Germany.
    6. Xin Jin, 2014. "Flattening Firms and Wage Distribution," Working Papers 0414, University of South Florida, Department of Economics.
    7. Lazear, Edward P. & Shaw, Kathryn L., 2014. "The value of bosses," LSE Research Online Documents on Economics 60611, London School of Economics and Political Science, LSE Library.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xin Jin, 2014. "The Signaling Role of Not Being Promoted: Theory and Evidence," Working Papers 0314, University of South Florida, Department of Economics.
    2. Jin, Xin, 2014. "The Signaling Role of Note Being Promoted: Theory and Evidence," MPRA Paper 58484, University Library of Munich, Germany.
    3. Michael Waldman, 2012. "Theory and Evidence in Internal LaborMarkets [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    4. Jin, Xin, 2014. "Flattening Firms and Wage Distribution," MPRA Paper 58485, University Library of Munich, Germany.
    5. Xin Jin, 2014. "Flattening Firms and Wage Distribution," Working Papers 0414, University of South Florida, Department of Economics.
    6. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    7. Cassidy, Hugh & DeVaro, Jed & Kauhanen, Antti, 2016. "Promotion signaling, gender, and turnover: New theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 140-166.
    8. Jed DeVaro & Suman Ghosh & Cindy Zoghi, 2018. "Job Characteristics and Labor Market Discrimination in Promotions," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 57(3), pages 389-434, July.
    9. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
    10. Bas Klaauw & António Dias da Silva, 2011. "Wage dynamics and promotions inside and between firms," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(4), pages 1513-1548, October.
    11. Jed DeVaro & Michael Waldman, 2012. "The Signaling Role of Promotions: Further Theory and Empirical Evidence," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 91-147.
    12. Edward P. Lazear & Paul Oyer, 2012. "Personnel Economics [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    13. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, April.
    14. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    15. Luis Garicano & Esteban Rossi-Hansberg, 2015. "Knowledge-Based Hierarchies: Using Organizations to Understand the Economy," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 1-30, August.
    16. Robert Gibbons & Michael Waldman, 2006. "Enriching a Theory of Wage and Promotion Dynamics inside Firms," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 59-108, January.
    17. Rui Baptista & Francisco Lima & Miguel Preto, 2013. "Entrepreneurial skills and workers’ wages in small firms," Small Business Economics, Springer, vol. 40(2), pages 309-323, February.
    18. Dato, Simon & Grunewald, Andreas & Kräkel, Matthias & Müller, Daniel, 2016. "Asymmetric employer information, promotions, and the wage policy of firms," Games and Economic Behavior, Elsevier, vol. 100(C), pages 273-300.
    19. Catherine Haeck & Frank Verboven, 2012. "The Internal Economics of a University: Evidence from Personnel Data," Journal of Labor Economics, University of Chicago Press, vol. 30(3), pages 591-626.
    20. Ján Zábojník, 2012. "Promotion tournaments in market equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(1), pages 213-240, September.
    21. Waldman, Michael, 2016. "The dual avenues of labor market signaling," Labour Economics, Elsevier, vol. 41(C), pages 120-134.

    More about this item

    Keywords

    performance; career dynamics; span of control;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aah:aarhec:2013-02. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: http://www.econ.au.dk/afn/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.