Organizational Design with Portable Skills

Abstract

Workers can move across firms and take with them portable skills. This has an impact on how firms are organized and allocate tasks across workers. To reduce mobility, a profit maximizing firm may inefficiently allocate talented workers on tasks that reduce their outside option. In the existing literature, asymmetric information about workers' talents makes this retention strategy profitable, although inefficient. In this paper we let workers' skills be observable across firms, but task allocation to be noncontractible. Inefficient assignment of tasks to workers persists in this environment.We show that by organizing a firm as an equity-partnership, in which the total profit is shared, the efficient task allocation can be implemented and profit increased. This result is attained through shifting control rights to workers that become partners and decide over task allocation. Both partners and workers are retained in equilibrium.This paper provides a new rationale for the widespread presence of partnerships in human-capital intensive industries.JEL classification: D86, J24, J54, M52.

Worker visibility and firms' retention policies

“…We complement these papers by introducing worker visibility to the setting, that is that the firm's job assignment directly impacts the visibility of the worker to the outside labor market. Similarly, Picariello (2017) does not only focus on wage rises but also analyzes job assignment as a means to reduce the threat of poaching offers. In his model of symmetric employer learning, jobs differ in the extent to which a worker acquires firm‐specific human capital.…”