Firm export diversification and change in workforce composition

Abstract

The objective of this paper is to show that part of the fixed cost of a firm’s trade expansion is due to the acquisition of new internal capabilities (e.g., technology, production processes or skills), which implies a costly change in the firm’s internal labor organization. We investigate the relationship between a firm’s labor structure, in terms of the relative number of managers, and the scope of its export portfolio, in terms of its product–destination varieties. The empirical analysis is based on a matched employer–employee dataset covering the population of French firms from tradable sectors over the period 2009–2015. Our analysis suggests that market expansion, both through export entry and export diversification, is associated with a change in the firm’s workforce composition, namely an increase in the number of managerial layers. These results are generally confirmed with the use of an instrumental variable approach to control for reverse causality. We show how these results are consistent with a simple model, where the complexity of a firm’s operations increases with the number of product–destination couples exported and the manager’s role is to address the unsolved problems arising from such increased operational complexity.