Within-firm Labor Heterogeneity and Firm Performance: Evidence from Employee Political Ideology Conflicts*

Abstract

This paper explores the implication of within-firm labor heterogeneity for firm performance through the lens of employee political ideology. Using individual campaign donation information to capture political ideology, I find that political ideology conflicts, both those between CEOs and employees and those within employees, are negatively associated with firms’ future operating performance. This effect is stronger for firms whose employees are more geographically concentrated, more sophisticated, and more devoted to political participation. The reduced labor productivity and abnormal employee turnover are two plausible mechanisms through which employees’ political ideology conflicts hurt firm performance. To establish causality, I use an instrumental variable approach which relies on the exogenous variation in political ideology caused by local television station ownership changes. JEL classification codes: G30, P48, J28, J53, M14