creative destruction and firm organization choicemkredler/readgr/gonzalezonthesmarthoenig0… ·...

Creative Destruction and FirmOrganization Choice

David Thesmar and Mathias Thoenig (QJE 2000)

Presented by Beatriz GonzálezMacroeconomics Reading Group - UC3M

September, 2016

Introduction The Model Discussion Macroeconomic Evidence Microeconomic Evidence Conclusions

Introduction

I Organizational choices represent a trade-off: efficiency vs.adaptability.

I Larger organizations allow productivity gains.I Larger organizations resists implementation of innovations.→ Implementation costs are positively correlated withcomplexity of organizational design.

Thesmar, Thoenig (2000) Creative Destruction and Firm Organization Choice


Introduction

Aim of the paper

Assess the interaction between organizational choice and themacroeconomy.

I Schumpeterian growth theory à la Aghion and Howitt.I Creative destruction rate brings product market instability.I Skilled vs Unskilled workers.I R&D sector : sell patent to producing sector.I Producing sector : face organizational problem.

I Mechanistic. High productivity at expense of a sunk cost.I Organistic. Low productivity without sunk cost.



Introduction

The theory provides:I Macroeconomic foundation for endogenizing segregation by

skill.I Explanation for:

I Increase in the relative supply of skilled workers.I Increase in skill premium.I Decrease in the unskilled real wage.

I Predicts that the degree of specialization in productiondecreases with market size.

I Globalization between similar countries may have strongconsequences for a firms’ organization and labor demand.



The Model

I Continous time, continuum of goods.I Two types of labor: skilled (H) and unskilled (U)I Consumption index:

lnCt =

∫ 1

0ln(λs(i)ct(i))di (1)

I λ > 1 quality improvement step.I s(i) is the number of innovations experienced by good i.I ct(i) is the quantity of good i consumed at t.

I R&D sector. Creates undirected innovation according to aPoisson process θ.

bθ = hRD (2)



The Model

I Producer sector. For each sector i ,I Produce y = ahαu1−α

I Unit cost function uc(ws ,wu)a

I Buy a patent:I High productivity a + sunk cost.I Low productivity a.

→ Isomorphic to choice of IRS vs CRS technology.



Competition at Microeconomic Level

I Bertrand competition.I New entrant will crowd out the market if

λa > a−1 (3)

I Expected value of profits.

V (a; a−1, θ) =(1− a−1)/λa

r + θ− C I|a=a| (4)

I Entrant’s reaction function.

a ∗ (a−1, θ) =

a if θ > a−1

∆aaaλC − r

a if θ < a−1∆a

aaλC − r



Competition at Microeconomic Level

Proposition 1

1. CRS equilibrium. All firms choosing a is an equilibrium ifand only if

θ >∆a

λCa= θ

2. IRS equilibrium. All firms choosing a is an equilibrium ifand only if

θ <∆a

λCa= θ



General Equilibrium

Restrict to stationary symmetric equilibria.

I Price of innovation = Value of the firm.

V (θ) =1− 1/λr + θ

− C I|a=a| (5)

I Choice of technologya = a if θ < θ and a = a if θ > θ

I Free entry in R&D.bws = V (θ)

I Labor market clearing conditions.

H = bθ +α

λws

U =(1− α)

λwu

Figure.- Aggregate Labor Demand in CRS and IRS equilibria.



General Equilibrium

Restrict to stationary symmetric equilibria.I Price of innovation = Value of the firm.

V (θ) =1− 1/λr + θ

− C I|a=a| (5)

I Choice of technologya = a if θ < θ and a = a if θ > θ

I Free entry in R&D.bws = V (θ)

I Labor market clearing conditions.

H = bθ +α

λws

U =(1− α)

λwu

Figure.- Aggregate Labor Demand in CRS and IRS equilibria.



General Equilibrium

Proposition 2

∃(H, H) such that H < H and1. If H < H, then the economy is IRS in all sectors.2. If H > H, then the economy is CRS in all sectors.3. If H ≤ H ≤ H, both equilibrium exist.



DiscussionChange in organizational structure IRS → CRS

Given H ∈ {H, H} → Change in equilibrium from IRS to CRS.I Result 1. The rate of creative destruction is higher in the

CRS equilibrium (θCRS > θIRS), and the stock market value ofa firm is higher (VCRS > VIRS).

I Result 2. The production level is lower in the organistic CRSequilibrium (XCRS < XIRS).

I Equilibrium wages:I ’Disorganization effect’ (a < a) lowers both wu and ws .I Skilled workers leave production for research → marginal gain

of hiring skilled workers go down.I Demand for labor in R&D is higher → increase ws .



DiscussionChange in organizational structure IRS → CRS

I Result 3. Wage inequality, as measured by the skill premium,is higher in the CRS equilibrium than in the IRS one.((ws/wu)CRS > (ws/wu)IRS).

ws

wu=

(α

1− α

)U

H − bθ(6)



DiscussionMarket Size and Organizational Change

I Number of sectors in the economy is of measure N.

H/N = bθ + (r + θ)/(λ− 1− Cλ(r + θ)I|a=a|) (7)

I Expansion of market size → If N remains fixed, the expansionis favorable to CRS equilibrium.

I Coordination costs exert a more stringent constraint thanmarket size.

I Hysteresis along the transition path. CREATIVE DESTRUCTION 1217

H/N/

/ g ~~~~~~~a-:

IRS

: _

FIGURE II

Short-Run and Long-Run Effects of a Larger Market Size

mid-1980s. Our model provides a new perspective for understand- ing these facts.

In order to restrict our attention to pure composition effects in

the labor force, we suppose (in the spirit of Young [19981) thatN = U + H. An increase in the share of skilled labor may shift the economy to the CRS equilibrium (equation (13) and Proposition 2). This has two effects on wage inequality. First, inequality is reduced through lowering the skilled wage. This is a standard

supply effect. Second, if the skilled labor supply hits the upper bound HIN, firms face an economywide organizational change. As a result of this effect, the skill premium rises (see the preceding section). As an example, Figure III shows the case where both the supply and organizational change effects are at work, but where the latter outweighs the former.

Our model is thus able to generate a comovement between the share of skilled labor and the skill premium. The intuition behind this outcome lies in the possibility that an increase in skilled labor supply can induce more than its own demand. This feedback of supply into demand has been ignored by economic theory until recently. There is now a small, but growing, body of literature dealing with these issues. To our knowledge, the first paper exhibiting these features is Acemoglu [1998a]. He models an economy where firms post vacancies, choosing in a first step the quantity of capital associated with each job. Then they search for workers to fill the vacancies. Labor supply is composed of two types of workers: productive (skilled) and less productive (unskilled). If the supply of skills is scarce, firms will fill their

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DiscussionIncrease in Skilled Labor Force

I Autor, Katz and Krueger (1998): Increase of US collegepremium sharply AND of the college educated share ofworkforce during the 1980s.

I Askenazy (1999): most sectors that have reorganized did so inthe mid-1980s.

I Assume N=U+H → Increase in the share of skilled labor mayshift the economy to the CRS equilibrium.

I Supply effect: reduces inequality through lowering skilled wage.I Organizational effect: occurs if skilled labor supply hits the

upper bound H/N

Model is able to generate comovement between the share ofskilled labor and the skill premium.

Figure.-Increase in Skilled Labor Supply and Equilibrium Shift.



DiscussionEconomic Integration

Economic integration of two countries with identical laborendowments Ni = Ui + Hi , N exogenous.

I Case A. Both countries produce goods that are completelydifferent.

I Number of sectors increases (N1 + N2) = (U1 + U2 + H1 + H2)I Sectorial θ does cont change since share of skilled labor

remains constant.

I Case B. Both countries produce exactly the same goods.I Number of sectors increases remains intactI Sectorial θ rises, and the integrated economy may shift from

the IRS equilibrium to the CRS equilibrium.I Firms change organizational structure.I Inequality rises.



Macroeconomic Evidence

Data: French Survey of the Structure of Employment in firms(INSEE)

I Provides information on both skill and function at the firmlevel.

1222 QUARTERLY JOURNAL OF ECONOMICS

TABLE I

DESCRIPTIVE STATISTICS ON OCCUPATIONAL STRUCTURE

Adminis- Commercial- Produc- Logis- Devel-

Function ration ization tion tics opment

Share in total employment (%)

1984 18.5 11.4 51.6 13.7 4.90

1995 18.0 15.4 44.4 14.7 7.50

Share of skilled workers (%) 1984 35.7 55.8 14.8 15.5 100

1995 43.7 54.3 17.2 15.9 100

Source. Employment structure survey [ESE 1984, 19951. All French Establishments of more than twenty employees except in Household Services, Health Care,

and Education. Employment is measured in terms of distinct individuals. Skill measure is derived from the detailed French socioprofessional classification and depends on education level and experience.

All numbers are percentage point changes.

percent of aggregate employment in 1995; at the same time they represent the most skill intensive jobs.

How have the shares of different functions varied with time? Their evolutions are plotted in Figure V. A large employment reallocation from production toward development and commercial-

ization (the most skill intensive functions) took place from 1984 to

1995 in the French economy. Indeed, the share of production workers decreased by 7 percent, while that of development and

commercialization workers increased by 6.5 percent over the

. ~ ~ ~ ~ ~. ..~ - - - - - 0,52

0,2 1

0,16 ! \ ; 0,48 Adninistrat ion C-- Conrnercialization

. 0,12 a ~ - 0,46 Logistics --e~veloprrent

. . i ~~~~~~~~~~ ~~~~~~~~0,44 ]D 1 A Production

0,08 , , . 0,42

0,04 -- ! |--?-i -i____A .t__+_ _0,4 .' )L (o rl- co 0) M It LOn X

co co co co co co 0) a) ) 0) 0) 0) 0) a ) CY) CY) CY) CY) CY) CY) CY) CY) CY)

Year

FIGURE V

Occupation Shares in France Source Enquete Structure des Emplois.

Note. Right axis for Production, Left axis for Administration, Logistics, Development, and Commercialization. Shares are computed by dividing the aggregate number of workers in a given function by the sample labor force.


Figure.- Share of Skilled Jobs in France



Macroeconomic EvidenceMain Findings

I Sectorial reallocation has little explicative power with regard tothe aggregate skill upgrading of French jobs.

Sectorial Reallocation and Skill Upgrading

I Functional reallocation explains more than half of theaggregate skill upgrading.

Functional Reallocation and Skill Upgrading

I Economywide reorganization should result in a rise in the rateof creative destruction.

I Increased share of value added devoted to R&D and increase inthe number of patents filed.

Rise in Rate of Creative Destruction



Microeconomic EvidenceMain Results

I Very negative and significant correlation between productturnover (proxy for creative destruction) and allocation ofemployment to production.


I Negative relation between development effort and the share ofproduction workers.




Conclusions

I Embed firm’s choice of organizational structure in a model ofgrowth through creative destruction → endogenous marketvolatility.

I Provide comparative staticts dealing with aggregate productmarket instability and:

I Labor marketsI Organizational choices.I Economic integration

I Find that firm-level data provides a picture consistent with themodel.



’The view expressed in this paper is that there is no obvious reasonwhy technical progress should be more skilled biased than it was 50years ago. However, we argue that a move toward moredecentralization and horizontal communication in the organizationof firms intrinsically favors skilled labor to the disadvantages of theunskilled.’



Any questions?

Thank you!



Aggregate Labor Demand in CRS and IRS equilibria

CREATIVE DESTRUCTION 1211

R equilibrium

0

IRS equilibrium

FIGURE I

Aggregate Labor Demand in CRS and IRS Equilibria

destruction 0 is larger, as production is more efficient, and therefore employs more of them. This is why the labor demand curve in the IRS regime lies above the CRS one. Thus, strategic choice of organizational structure renders labor demand nonmono-

tonic, and for intermediate values of the skilled labor supply, the horizontal supply curve intersects the demand curve twice.

PROPOSITION 2. Description of Equilibria: 3(H,H) such that H < H and

1. if H ' H then the economy is IRS in all sectors;

2. if H H, then the economy is CRS in all sectors; 3. if H ' H < H. both equilibria coexist.

This result highlights the key role of a second strategic

complementarity that arises in general equilibrium through the R&D sector. Indeed, let all other firms choose to be CRS. As noted above, this common strategy raises their value, and hence R&D's marginal productivity (recall that the labs' expected flow of profits is given by (V/b) * hRD),15 which in turn raises R&D's output, i.e., the growth rate 0. But from Proposition 1 we know that a higher rate of creative destruction generates an externality on the

sectors' choices, rendering more likely the existence of a CRS equilibrium.

In summary, the externality that firms' decisions impose on

15. Note that this effect is robust to a Decreasing Returns to Scale specifica- tion of the R&D technology: 0 = la/b.


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Aggregate Labor Demand in CRS and IRS equilibria


7:.

RS

W 2 .. . . . . . .. . . . .

A

WI ...... - --IRS

Hi ........1H2 H

FIGURE III

Increase in Skilled Labor Supply and Equilibrium Shift

vacancies with the first worker they find. In equilibrium, all posted vacancies will be associated with the same quantity of capital, since ex ante discrimination is not profitable for firms: this is his pooling equilibrium. On the other hand, if the supply of skills is abundant, it will be profitable for firms to create both highly capital-intensive vacancies, designed for skilled workers exclusively, and jobs associated with low capital, for unskilled workers. In this separating equilibrium, skilled wages will be higher, and unskilled wages lower. In this model, matching externalities along with hold-up effects, make the expected marginal return to capital depend on labor force composition.

Our story is quite different. It results from the combination of two features. First, a CRS economy has a lower demand for unskilled labor in production, since it does not invest in the sunk cost. Second, the CRS economy actually has a higher demand for skilled workers in research. Hence, the economy reacts to a larger supply of skilled workers by creating even more skilled jobs in R&D, and by destroying unskilled jobs in production.

E. Economic Integration

The discussion above suggests that our model can provide some insights into the labor market consequences of international trade between similar countries. Consider the economic integration of two countries (1 and 2). Suppose that the skill endowments of these countries are identical, U1 U2 and H1 =H2, so that, after integration, neither country will opt for complete specialization.

The number of goods in each country is Ni U, + Hi. We consider


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Share of Skilled Jobs in France CREATIVE DESTRUCTION 1221

.34 -

.32-

.3 -

.28

.26

84 95

year

FIGURE IV

Share of Skilled Jobs in France: 1984-1995 Source Enquete Structure des Emplois (1984-1995).

information on both skill and function at the firm level, allows us

to deal more easily with labor demand issues.18

B. Macroeconomic Evidence

Figure IV plots the share of skilled jobs in aggregate employ-

ment from 1984 to 1995. Over this period, France has seen a skill upgrading ofjobs of the same magnitude as found in other OECD

countries [Machin and Van Reenen 19981. In our panel the total increase in the share of skilled workers over the period is 5.8

percent, equivalent to an average increase of 0.5 percent per year. Table I displays aggregate function shares and skill intensi-

ties across years. We see that production is the largest and most unskilled labor-intensive function. Development and commercialization are the two smallest functions, but together account for 23

18. We show below that the recent evolution in the skill structure of French employment exhibits similar trends as other OECD countries. For this reason, if France behaves like the rest of the world on the skill dimension, then our empirical analysis should be informative for other developed economies (under the assump- tion that organizational change is pervasive to some extent).


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Macroeconomic EvidenceSectorial and Functional Reallocation and Skill Upgrading

∆H

N=

M∑i=1

∆hini

niN︸︷︷︸

Within component

+M∑i=1

∆hini

niN︸︷︷︸

Between component

(8)


TABLE II

SECTORIAL REALLOCATION AND SKILL UPGRADING

Years 84-90 90-95 84-95

D(Skilled) 4.02 2.06 6.08 Between sector 0.42 -0.03 0.09

Within sector 3.60 2.09 5.09

Source. Employment structure survey [ESE 1984, 1990, 19951.

All French Establishments of more than twenty employees except in Household Services, Health Care and Education. Employment is measured in terms of distinct individuals. Skill measure is derived from the detailed French socioprofessional classification and depends on education level and experience. The table variables refer to the Berman, Bound, and Griliches [19941 decomposition. The percentage increase in skilled

employment (D(Skilled)) in the sample is equal to the sum of two terms. The first is the sum of net percentage increases in each sector's employment, weighted by this sector's share of skilled workers in employment (Between sector). The second term is the sum of sectorial increases in skilled employment, weighted by each sector's share in total employment (Within sector). To define sectors, we used a two-digit classification (70 sectors).


be held responsible for the observed widespread skill upgrading of jobs, and that pervasive Skill Biased Technical Change remains the best alternative explanation.

Table II gives the within-between sector decomposition of the aggregate skill upgrading, from 1984 to 1995, and on two five-year subperiods, using our French enterprise data. We use two-digit sector classifications.19 The between term is almost negligible, suggesting that the sectorial reallocation has little explicative power with regard to the aggregate skill upgrading of French jobs over the period 1984-1995.2o Our results are thus consistent with what has been found in the two papers cited above; on the skill dimension, French data exhibit the same regularities as displayed by other countries.

The prediction of our model is that functional, instead of

sectorial, reallocation should have taken place, as a result of increased creative destruction. Table III provides the between- within function decomposition of the skill upgrading: although we have only five functions, the functional reallocation explains more than half of the aggregate skill upgrading in France. Note that the contributions of production, development, and commercialization are large: reallocation (the between term) takes place from

19. Berman, Bound, and Griliches' study involves a classification of 29 sectors. Our two-digit NAF classification provides us with 70 sectors. A similar decomposition performed on a more disaggregated classification did not change the result.

20. Also note that between-within firm decomposition also yields a negligible between firm reallocation.


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Macroeconomic EvidenceSectorial and Functional Reallocation and Skill Upgrading

CREATIVE DESTRUCTION 1225

TABLE III

FUNCTIONAL REALLOCATION AND SKILL UPGRADING

Years 84-90 90-95 84-95

D(skilled) 4.02 2.06 6.08 Between function

Administration 0.10 -0.29 -0.17

Commercialization 0.98 1.25 2.21 Production -0.62 -0.56 -1.16

Logistics 0.12 0.04 0.16

Development 1.17 1.42 2.60 Total 1.76 1.88 3.65

Within function

Administration 1.04 0.43 1.45

Commercialization 0.07 -0.29 -0.19

Production 0.97 0.17 1.12

Logistics 0.17 -0.11 0.06

Development

Total 2.25 0.19 2.43

Source. Employment structure survey [ESE 1984, 1990, 19951.

All French establishments of more than twenty employees except in Household Services, Health Care, and Education. Employment is measured in terms of distinct individuals. Skill measure is derived from the detailed French socioprofessional classification and depends on education level and experience. The table variables refer to a variant of the Berman, Bound, and Griliches [19941 decomposition. The percentage increase in skilled employment (D(skilled)) in the sample is equal to the sum of two terms. The first is the sum of net percentage increases in each function employment weighted by this function's share of skilled workers in employment (Between function). The second term is the sum of increases in skilled employment within each function, weighted by this function's share in total employment (Within function). Recall that functions are decomposed into five categories, while sectors are decomposed into 70 categories.


production to development and commercialization. The within production and within administration terms are also quite large, suggesting that skill-biased technical change may be taking place mainly within these two functions.

To sum up, the extent of this functional reallocation from

production to development and commercialization is quantita- tively important, in that it accounts for almost half of the

economy's aggregate skill upgrading. Murphy and Welch [1993] find similar results: they estimate, under particular elasticity assumptions, that a shift in occupations is responsible for one- third of the increase in demand for skilled labor in the U. S.

economy between 1950 and 1990. Finally, our theory predicts that economywide reorganization

21. This methodology is purely descriptive; strictly speaking, these results cannot be interpreted without strong assumptions on the different elasticities of substitution of the underlying production function (for a more structural analysis, see Maurin and Thesmar [1999]).


BackThesmar, Thoenig (2000) Creative Destruction and Firm Organization Choice


Macroeconomic EvidenceRise in Rate of Creative Destruction


120000

100000

an BE _ Be se F_ uRE V

Sc P m at O Fa

anetApid VanRene [1981 thaney anoPtent thantetween 1973 anitd 1989,s the shareofuvale Paddedt dfievotraned tod R&D Uinteve OtaeCDcunre

(Japan, reunited Satese Uniterted Kigom, Freanve, Gesrmatiny, Denor-

Marktandgwee) hasrm. inrcreasedo bybeterent4 (an 100 percent.

Figures Vin shwslv thear) number ofvpaentes grantded by thecU.iS patnta offie sne [1968,: aogwtheynt thet nuberwe of7 patnts applie

for inare sine 1985. In bh i we a ountwof

mradSee)hsincreasedb between 198 and 199,asino daai aceleratio

in patenting activity in the past two decades. Although patenting rate is a crude proxy for innovative activity, this pattern suggests a substantial increase in the rate of creative destruction.2

Furthermore, Gottschalk and Moffit [19941, using the PSID

22. According to Griliches [1990], the decrease in patents granted during the 1970s is mainly the consequence of a smaller budget for printing the approved patents at the U. S. patent office. However, as can be seen in Figure VI, the subsequent rise (from 1980 onward) in patent approval largely surpasses the number of patents granted in 1970, the peak year before the decline.


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Microeconomic Evidence

I Dependent variable: PR, share of production workers.I Independent variable: NPR, share of new products in total

sales CREATIVE DESTRUCTION 1229

TABLE IV

INNOVATION TLJ7RNOVXER AND FUNCTION REALLOCATION

Share of production workers Model 1 Model 2

Share of new products in total sales (86-90)

Between 10 and 30% -0.05 -0.05 (11.44) (10.88)

Between 30 and 70% -0.07 -0.06 (9.54) (8.82)

More than 70% -0.09 -0.08

(5.31) (4.9) Employment (le-6) -3.58

(1.57) Observations 11233 11233

R2 0.02 0.06

Source. Enquete Innovation and Enquete Structure des Emplois (balanced panel). The dependent variable is the average of the 1986 and 1990 shares of production workers. The equations are estimated through OLS with White 11980] correction for arbitrary heteroskedasticity. Model 2 includes the total employment and fifteen sectorial dummies as additional regressors.

workers in total employment excluding development of new

products. In this regression we use the full, unbalanced panel of firms, although we require that a firm does not disappear and later reappear in the data set. This leaves us with 568,146

observations between 1984 and 1995. Model 1 regresses PR on DNP lagged by one period, while model 2 adds total employment

(TOT) as a second regressor. In both cases, the estimation includes firm-specific fixed effects. Finally, in order to control for long-term trends, models 3 and 4 perform the same regression using five-year differences. As shown in Table V, all models (except model 3, which is rejected by the data) exhibit a negative relation between development effort and the share of production workers.

V. CONCLUDING REMARKS

This paper is motivated by the observation that the organiza-

tion structures of firms in all OECD industries experienced extensive mutations since the 1970s. In a model of Schumpeterian growth, where production is less skill intensive than research, we allow patent owners to choose an optimal organizational structure in response to volatility in the economic environment. The micro-

economic analysis highlights the importance of product market instability (rate of creative destruction) on a firm's choice of

organization. A general equilibrium framework reveals that firms'


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Microeconomic Evidence

I Dependent variable: PR, share of production workers.I Independent variable: DNP, number of workers devoted to

development of new produtcs. 1230 QUARTERLY JOURNAL OF ECONOMICS

TABLE V

DEVELOPMENT EFFORT AND FUNCTION REALLOCATION

Share of production Model 1 Model 2 Model 3 Model 4

Total employment (le-6) 6.86 7.05

(28.34) (8.56)

DNP (le-6) -5.66 -13.9 13.4 -41.1

(3.08) (7.47) (0.42) (4.93)

Observation 568146 568146 238932 238932

Fisher statistic 106.6 106.79 0.18 36.8

Source. Enquete Structure des Emplois. Note. DNP corresponds to the number of workers in the function Development of New Products (R&D and

marketing). Models 1 and 2 use lagged conception employment. They are estimated by OLS with firm-specific effects. Models 3 and 4 use long differences (five years). They are estimated by OLS. t-statistics are in parentheses.

organizational decisions could feed back into aggregate instability. These two externalities combine to generate a macroeconomic

complementarity, so that mass production itself reinforces the stability of product markets. Thus, multiple equilibria (mass production/organistic firms) coexist for certain parameter values.

Our findings mostly deal with the interaction between the labor market, equilibrium choices of organization, and aggregate product market instability. Comparative statics show that an

increase in the size of the skilled labor force can shift the economy into a zone where both equilibria coexist, and possibly to the zone where only the CRS (organistic) equilibrium exists. This possible equilibrium shift yields an increase in aggregate instability and wage inequality. Furthermore, unskilled wages temporarily drop, while skilled wages jump. Economic integration with similarly skill endowed countries is shown to have the same effects, at least in the short run.

Our conclusions are consistent with recent waves of firm reorganizations, past labor market mutations in several OECD countries (the United States, the United Kingdom, Australia), and an increase in the college enrollment rate. The view expressed in this paper is that there is no obvious reason why technical progress should be more skilled biased than it was 50 years ago. However, we argue that a move toward more decentralization and horizontal communication in the organization of firms intrinsi-

cally favors skilled labor to the disadvantages of the unskilled. The second part of this paper is devoted to an analysis of

firms' organizations by way of their functional structures. We


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