Firm Centralization and Redeployment via Internal Labor Markets

Abstract

Efficient intra-firm resource allocation and redeployment positively affect firm performance, but we lack evidence on which firm characteristics enable redeployment. This paper examines the role of organizational structure—specifically whether decision-making authority is centralized or decentralized—on worker redeployment following establishment closures in Brazilian manufacturing firms. Using a triple-difference research design, we find that centralized firms are more likely to redeploy workers out of closing establishments than decentralized firms. An analysis of mechanisms suggests that the redeployment “advantage” is reduced in centralized firms facing greater information frictions and in decentralized firms with stronger firm-level incentives; we find no evidence that it is moderated by stronger organizational control mechanisms. For workers, redeployment mitigates the negative effects of closure, shielding them from sharp spikes in unemployment and persistent earnings losses. These benefits are larger for workers in more centralized firms, suggesting that following closures, centralized firms are better at matching workers to opportunities elsewhere in the firm.