The Inner Beauty of Firms

Using millions of task assignments from salon management software, I find significant establishment-level dispersion in labor productivity and internal task specialization and a strong association between the two that is unexplained by establishment size. The 25% most specialized salon-quarters are on average 68% more productive than the bottom 25%. To rationalize these facts, I identify and estimate a model where competing firms assign tasks to workers with multidimensional skills in light of firm-specific coordination costs. Without internal reorganization, immigration of low-wage workers into Los Angeles County reduces labor productivity by 1.4%. With internal reorganization, labor productivity rises by 2.2%.