Firms do not compete on productivity alone. As emphasised by Sutton (2012), their success also depends on their ability to shape demand – by designing attractive products, managing quality, adapting to regulations, and deploying effective marketing strategies. These demand-side capabilities allow firms to differentiate their products, charge higher markups, and increase profitability.

Yet, a critical question remains: what kinds of jobs make this possible? Who inside the firm is responsible for deriving competitive advantage from the outside information? And how are these roles organised within firms?

In a recent paper (Mengus and Michalski 2026), we argue that the answer lies in a large and growing group of jobs that has been largely overlooked: knowledge jobs. These are not managerial or production in nature, nor are they limited solely to R&D staff. Instead, they are specialised employees engaged in knowledge-generating tasks across a wide range of ‘functions’ (tasks) – from marketing and legal services to procurement, IT, consulting, and business-to-business.

Using detailed administrative data on French manufacturing firms, we show that these knowledge jobs are central to firm performance. They account for a substantial share of economic activity – around 18% of total hours worked and 25% of the wage bill – and their importance has increased significantly over time (Figure 1). Between 1999 and 2015, their share rose steadily, mirroring the decline of production jobs in the context of automation, outsourcing, and globalisation, while that of managerial jobs – which received so much attention in the literature following the seminal contribution by Bloom and Van Reenen (2007) – remained roughly constant. Larger firms, in particular, rely heavily on such roles, with knowledge jobs representing over 30% of employment in the biggest firms.

Figure 1 Share of functions within firms

Note: The left-hand panel shows the hours share of production, management (“gestion” or administration in French), knowledge and routine service jobs in total hours worked while the right-hand panel gives the wage shares of the same categories. Job typology based on the INSEE functional coding of 4-digit 2003 PCS occupation classification. Production jobs (code “FABRIC” in the INSEE Functions nomenclature) include jobs involved in producing tangible goods and energy; management (code “GESTIO”) include CEOs, managers and administration staff; knowledge jobs comprise of occupations related to B-to-B (“COMINT”), R&D (“CONREC”) and Intellectual Services (“PREINT”); routine service jobs are those in maintenance (“ENTREP”) and transport and logistics (“LOGIST”). Shares of other functions are not shown so the shares do not sum to 100%. Sample: firms in manufacturing with employment >50 employees in 2015.

Crucially, knowledge jobs are not simply ‘hidden managers’ or relabelled engineers. They perform distinct tasks. Unlike managers, who focus on coordination and decision-making, or production jobs embedded in hierarchical problem-solving chains (see the literature following the seminal contribution by Garicano 2000, and its connection with French data on production hierarchies in Caliendo et al. 2015), knowledge jobs specialise in processing information and transforming it into usable knowledge.

Their organisation within the firm also sets them apart. Knowledge jobs are less tightly co-located with production but also management within firms, and clustered differently in space. Even more striking, they do not follow hierarchical patterns (Figure 2). Instead of forming pyramids with few high-skilled workers at the top, knowledge jobs display the opposite structure: higher-skilled, higher-paid roles are more numerous, suggesting a fundamentally different organisational logic.

Figure 2 Shares of production and knowledge jobs in hours worked within firms by layers

Note: The left panel shows the split of the share of production jobs in total hours worked for each hierarchical layer defined exactly as in Caliendo et al. (2015) for the French data. The one-digit occupation codes CS2 (CEOs) are highest in the hierarchy, followed by CS3 (“cadres” or high-skilled professionals) and then by CS4 (middle-skilled jobs). At the bottom, the occupation categories CS5 (base level employees) and CS6 (blue-collar jobs) are merged into one layer following the above-mentioned work. The right panel shows this split for knowledge jobs. Production jobs (code “FABRIC” in the INSEE Functions nomenclature) include jobs related to any process involved in the production of tangible goods and energy; knowledge jobs comprise of occupations related to B-to-B (“COMINT”), R&D (“CONREC”) and Intellectual Services (“PREINT”). Sample: 2015, firms in manufacturing with employment >50 employees.

Why does this matter? Because knowledge jobs play a critical role in building firm capabilities – not only on the productivity side but also the demand side.

Empirically, firms with a higher share of knowledge jobs produce more complex, higher-quality, and more diverse goods (Figure 3). They charge higher markups and achieve stronger financial performance. These firms are also more innovative and exhibit higher levels of both quantity-based and revenue-based productivity.

Figure 3 Shares of knowledge jobs and firm product characteristics

Note: The panels show from top clockwise kernel-weighted local polynomial regressions of product complexity scores (PCI), the logarithm of the number of products, the logarithm of unit prices (a measure of product quality), and markups (measured using the approach by De Loecker and Warzyncki 2021) on the share of knowledge jobs employment at the firm-level. 95% confidence intervals around the estimates are shown. Sample: firms in manufacturing with employment >50 employees in 2015 trimmed at top and bottom 2.5% in terms of measured knowledge jobs share.

To move beyond correlation, we exploit exogenous variation in local labour markets and policy shocks affecting the supply of knowledge jobs. The results are clear: increasing the share of knowledge jobs causally improves firm performance. Importantly, the effects extend beyond productivity gains studied in the knowledge hierarchies literature (Caliendo et al. 2020). Knowledge jobs enhance demand-side capabilities – enabling firms to broaden their product range, produce more complex goods, improve quality, and better respond to market conditions.

Another key insight is that these effects are not driven solely by R&D related jobs. Even when R&D roles are excluded, non-R&D knowledge jobs – such as those in marketing, legal services, consulting, sales, and procurement – continue to have strong positive effects on innovation, productivity, and profitability. This highlights the importance of a broader ecosystem of knowledge-generating activities within firms.

Our findings offer fresh insights on many aspects of organisation economics.

First, they challenge the dominant focus on management and hierarchies as the primary drivers of firm performance. While managers and hierarchies remain important, they are only part of the story. Competitive advantage critically depends on the firm’s ability to mobilise specialised knowledge across multiple functions to increase demand capabilities.

Second, and connected to the first point, they reveal a new organisational margin: the allocation of knowledge jobs within firms. How firms distribute these roles across different functions – whether in marketing, legal, R&D, or procurement – has a direct impact on their ability to build capabilities and compete effectively.

Third, the rise of knowledge jobs may reshape market dynamics. While they enhance firm performance, they may also create barriers to entry. Access to specialised knowledge in areas like marketing or legal services is not easily replicable, potentially reinforcing the dominance of larger, more established firms. Many of the functions that are knowledge jobs (marketing, sales, advertising, legal, IT) are parts of SG&A costs which, according to De Loecker et al. (2020), drive the rise in markups.

Fourth, the findings align with the emergence of ‘factoryless’ firms (Bernard and Fort 2015), which outsource production while focusing on high-value, knowledge-intensive activities. From this perspective, competitive advantage no longer lies primarily in making goods efficiently, but in designing, branding, and positioning them effectively. Consistently with the findings by Atalay et al. (2014), firms increasingly create and transfer intangible assets in house – knowledge or expertise  – rather than physical products.

Real-world examples illustrate this transformation. Companies such as Adidas, General Electric, Newell Rubbermaid, and Tetra Pak have all shifted away from production-centric models by investing heavily in knowledge jobs. By expanding capabilities in areas like data science, marketing, design, and sales, they have been able to upgrade product quality, increase their complexity, and ultimately improve their firm’s financial performance.

In sum, our paper sheds light on a central but underexplored driver of firm success. Knowledge jobs – broadly defined and widely distributed across functions – are at the heart of firms’ ability to innovate, differentiate, and compete. Understanding how these roles are organised and deployed is essential for explaining firm heterogeneity in today’s knowledge-based economy.

References

Atalay, E, A Hortaçsu, and C Syverson (2014), “Vertical Integration and Input Flows,” American Economic Review 104: 1120–1148.

Bernard, A B and T C Fort (2015), “Factoryless Goods Producing Firms,” American Economic Review 105: 518–23.

Bloom, N and J Van Reenen (2007), “Measuring and Explaining Management Practices Across Firms and Countries,” Quarterly Journal of Economics 122: 1351–1408.

Caliendo, L, G Mion, L D Opromolla, and E Rossi-Hansberg (2020), “Productivity and Organization in Portuguese Firms,” Journal of Political Economy 128: 4211–4257.

Caliendo, L, F Monte, and E Rossi-Hansberg (2015), “The Anatomy of French Production Hierarchies,” Journal of Political Economy 123: 809–852.

De Loecker, J, J Eeckhout, and G Unger (2020), “The rise of market power and the macroeconomic implications,” Quarterly Journal of Economics 135: 561–644.

Garicano, L (2000), “Hierarchies and the Organization of Knowledge in Production,” Journal of Political Economy 108: 874–904.

Mengus, E and T K Michalski (2026), “Knowledge Jobs and Firm Capabilities”, CEPR Discussion Paper 18863.

Sutton, J (2012), Competing in Capabilities, Oxford University Press.