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DIVERSE ORGANIZATIONS AND THE COMPETITION FOR TALENT
Author(s) -
Eeckhout Jan,
Pinheiro Roberto
Publication year - 2014
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12065
Subject(s) - total factor productivity , marginal product , elasticity of substitution , economics , production function , elasticity (physics) , productivity , competition (biology) , output elasticity , constant elasticity of substitution , production (economics) , product market , econometrics , labour economics , microeconomics , technological change , function (biology) , industrial organization , incentive , macroeconomics , ecology , materials science , biology , composite material , evolutionary biology
We propose a theory of firm production that requires diverse inputs. We show that in a competitive labor market, firms differ in their skill composition. Organizations with higher total factor productivity (TFP) are larger and hire from a broader range of skills. Technological progress leads to an increase of all wages and results in downsizing. Quantifying productivity using our model shows that a constant elasticity of substitution (CES) production function generates unbiased estimates of TFP but biased estimates of marginal product and elasticity of substitution across skills. Our model also generates estimates of the TFP distribution based on CEO compensation alone.