The internal labor markets of business groups

Abstract

This paper provides novel micro evidence of labor mobility inside business groups. We show that worker flows between group firms are significantly more prevalent than between unaffiliated firms. We also find that groups respond to changing business conditions by reallocating top-occupation workers across affiliated firms. The wages of top workers increase as they move within the group. Internal labor reallocation is stronger when the worker’s origin firm controls the destination firm and in more complex hierarchical structures. Our results are consistent with the hypothesis that groups ease the transfer of intangible inputs, such as management practices, across firms.