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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Jan 17, 2015

The Bright Side of Corporate Diversification: Evidence from Internal Labor Markets


We document differences in human capital deployment between diversified and focused firms. We find that diversified firms have higher labor productivity and that they redeploy labor to industries with better prospects in response to changing opportunities. The opportunities and incentives provided in internal labor markets in turn affect the development of workers’ human capital. We find that workers more frequently transition to other industries in which their diversified firms operate and with smaller wage losses than workers in the open market, even when they leave their original firms. Overall, internal labor markets provide a bright side to corporate diversification.

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