Production Complexity, Talent Misallocation and Development (Job Market Paper)
Abstract: I study the organization of production, as summarized by the number of managers per plant, the number of workers per manager and the mean size of plants in terms of employment. First, I document that in the manufacturing sector, richer countries tend to have (i) more managers per plant, (ii) less workers per manager and (iii) larger plants on average. I then extend a knowledge-based hierarchies model of the organization of production where the communication technology depends on the managerial level in the hierarchy and the abilities of subordinates. I estimate model parameters so that the model jointly produces plant size distribution and number of managers per plant in the U.S. manufacturing sector. I quantitatively evaluate the effects of size-dependent distortions that are studied in the development literature, as well as communication technologies. I find that both size-dependent distortion and higher communication costs reallocate employment and output toward simpler forms of organizations with fewer managers per plant and smaller plant size. My results show that size-dependent distortions have bigger effect on output relative to similar studies that ignore organizational differences among production units. I find that when the largest, more complex, plants face distortions that are twice as large as distortions faced by smaller plants, output declines by 33.4% and the number of managers per plant falls by 30%. Moreover, I find that a 10% increase in communication cost parameters can account for a 35% decrease in the aggregate output without having a significant effect on the number of managers per plant.
Abstract: In this paper, I study the relationship between bribery, plant size and economic development. Bribery is a transfer from one party to government officials in order to `get things done'. Using the Enterprise Survey, I document that small plants spend higher fraction of their output on bribery than big plants do. Then I develop a one sector growth model in which size-dependent distortions, bribery opportunities and different plant sizes coexist. I conduct two sets of exercises in order to quantify the interplay of size-dependent distortions and bribery. First, I calibrate model parameters to generate plant size distribution of the U.S., by assuming the U.S. is free of distortions. Then I introduce size-dependent distortions to the undistorted economy and evaluate their effects with and without bribery opportunities. I find that size-dependent distortions become less distortionary in the presence of bribery opportunities and the effect of such distortions on the plant size become reversed since bigger plants are able to avoid from distortions by paying larger bribes. Subsequently, I calibrate the model with distortions and bribery opportunities to Turkish data. My results indicate that changes in the distortion level do not affect output and size significantly because managers are able to circumvent the distortions by adjusting their bribery expenditures. However, the removal of distortions can have a substantial effect on both the output and the mean size. Output in Turkey can increase by 12.3%, while the mean size can increase by almost double.
joint with Orhan Torul
The Journal of Economic Inequality, Forthcoming
Abstract: We investigate the evolution of Turkey’s wage, income and consumption inequalities using a cross-country comparable methodology and the Turkish Statistical Institute’s Household Budget Survey and the Survey of Income and Living Conditions micro data sets. Turkey’s wage, income and consumption inequalities all exhibit downward time trends over the 2002-2016 period. This observation aligns well with the rapid minimum wage growth over the period. While wage inequality estimates display strong countercyclicality, income and consumption inequalities exhibit rather acyclical time-series movements. While recent education premium estimates of Turkey are similar to those in the early 2000s, estimates of recent gender and experience premiums, as well as residual wage inequality are lower. Income and consumption inequality estimates exhibit similar time trends with moderate level differences, and these trends are robust to the choice of inequality metrics.