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

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 within employees and those between CEOs and employees, are negatively associated with firms’ future operating performance. This effect is stronger for firms whose employees are more geographically concentrated and more sophisticated. The reduced labor productivity and abnormal employee turnover are two plausible mechanisms through which employee 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.