How does the position in business group hierarchies affect workers' wages?

We merge firm-level data on ownership linkages with administrative data on German workers to analyze how the position in a business group hierarchy affects workers' wages. To acknowledge that ownership linkages are not one-directional, we propose an index of hierarchical distance to the ultimate owner that accounts for the complex network structure of business groups. After controlling for unobserved heterogeneity, we find a positive effect of larger hierarchical distance to the ultimate owner of a business group on workers' wages. To explain this finding, we develop a monitoring-based theory of business groups. Our model predicts higher wages to prevent shirking by workers if a larger hierarchical distance to the ultimate owner is associated with lower monitoring efficiency. [ABSTRACT FROM AUTHOR]