Internal labor markets, wage convergence, and investment

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I document wage convergence in conglomerates using detailed plant-level data: workers in low-wage industries collect higher-than-industry wages when the diversified firm also operates in high-wage industries. I confirm this effect by exploiting the implementation of NAFTA and changes in minimum wages at the state-level as sources of exogenous increases in wages in some plants. I then track the evolution of wages of the remaining workers of the firm, relative to workers of unaffiliated plants. Plants where workers collect higher-than-industry wages operate with higher capital intensity, suggesting that internal labor markets may affect investment decisions in internal capital markets.

Original languageEnglish
Pages (from-to)1192-1227
JournalJournal of Financial and Quantitative Analysis
Issue number4
Publication statusPublished - Jun 2021


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