Events

Prof. Aloysius Siow
Professor
University of Toronto

Under specialization, different employees in a firm produce different task outputs which are combined to produce the final output. The implementation of specialization raises several questions:

1.When task outputs are non-separable in final output production and workers are specialized, how are the different tasks, including the quantity and quality of each task output, determined and coordinated?

2.Since workers are specialized, siloed, how does the firm respond to decentralized information about changes in demand, costs and technologies?

3.How do the firm and industry obtain workers with the necessary specialized skills?

This essay discusses how the organization of firms and the labor market addresses the above questions. Resulting outcomes include:

∙  Managers coordinate specialization within the firm.

∙  The building block of a firm is a two-level hierarchy consisting of a manager/supervisor and several subordinates.

–  More complex firm structures are constructed by concatenating two-level hierarchies.

∙  Large firms with more than one two-levels hierarchies are more bureaucratic:

–  Workers need permission from their immediate manager to speak to higher level managers.

–  Managers may reject efficient task improvements from their subordinates.

∙  There is positive assortative matching by occupational skills across tasks. There are high wage and low wage firms.

∙  Job slots affect hirings, promotions, lateral mobility, firings and quits.

∙  Superior performance in a current job may not lead to a promotion.

∙  Communication skill versus occupational/domain knowledge.

∙  Dynamic and hierarchical comparative advantage.

∙  Firm specific capital.

The paper integrates ideas from the literature from the perspective of coordinating specialization.