This paper analyzes the relationship between core organizational change and the health of employees to illuminate the potential negative outcomes of change at the employees level. It relates to the ongoing debate over how employees react and respond to organizational change. I hypothesize that change increases the risk of negative stress, and I test this hypothesis using unusually comprehensive panel data on all stress-related medicine prescriptions for 92,980 employees in 1,526 of the largest Danish organizations. I find that the risk of receiving stress-related medication increases significantly for employees at organizations that change, especially those that undergo broad simultaneous changes to multiple core organizational structures. This illustrates that organizational changes are associated with significant risks of employee health problems, which could lead to organizational destabilization. These effects are further examined for employees at different levels of the organization and at firms of different sizes and from different sectors. I find that certain types of change appear less harmful and that some even significantly reduce stress.

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Using the matched employer-employee data set for Denmark and information on the founders of new firms, we analyze the hiring choices of all new firms that entered in 1995-2001. We develop a theoretical model in which the quality of a firm’s employees determines its average cost, a firm’s productivity is based on its pre-entry experience and persistent shocks, and over time firms learn about their productivity. The model predicts that more productive firms are larger and hire more talented employees, which gives rise to various predictions about how pre-entry experience, firm growth rates, and firm size influence the wages firms pay to their early hires. We find that beginning with the time of entry, larger firms consistently pay higher wages to their new hires. These are firms with greater survival prospects at the time of entry based on the pre-entry backgrounds of their founders and that grow at greater rates over time, both of which are predictive of the wages paid to new hires from the time of entry onward. Our findings suggest workers are allocated to firms according to their abilities, which can give rise to enduring firm capabilities.