Firm organization and worker outcomes: The role of occupational specialization

Using matched employer-employee data from Portugal, we show that firms differ starkly in their occupational employment composition, even within detailed industries, with some firms employing workers across a broad range of occupations and others being much more specialized. These differences are robustly predictive of wages: a worker employed in an occupationally-specialized firm earns less than that same worker employed in a less specialized firm. The wage penalty for working in an occupationally-specialized firm is observed across occupations and industries of all skill levels, and is distinct from the penalty associated with working in a firm with fewer organizational layers. Specialization helps account for the role of firms in inequality, as specialization is strongly negatively related to estimated AKM firm fixed effects. Around 40%–50% of the wage penalty from specialization is explained by differences in firm productivity. Specialized firms, however, also engage in lower rates of rent-sharing conditional on productivity, accounting for up to 30% of the difference in wage premia between high- and low-specialization firms. Finally, we show that being employed in a specialized firm is also associated with worse longer-term career outcomes for workers.