How are teams determined within the firm? What team composition maximizes productivity, and what other concerns or constraints might intervene to determine team composition in practice? These questions regarding how production is organized within the firm are important to understand the determinants of firm productivity, and are at the core of organizational and personnel economics.
Despite a great deal of theoretical work describing these types of firm decisions and their implications for productivity and growth, little empirical evidence exists regarding how teams are composed and why. This is due to stringent data requirements.
This paper leverages high frequency data on changing team composition within a firm and the resulting productivity, to answer the posed questions. Specifically, we ask how do workers match to managers? That is, do the most talented managers match with the most productive workers? Or do good managers match with workers who are struggling to perform?
We characterize this sorting pattern in six factories of a large garment manufacturer in India. Workers in this firm are organized into production lines, each supervised by a manager. We exploit the high degree of worker mobility across lines, together with over three years of worker-level productivity data, to estimate the sorting of workers to managers. In addition, we collect a novel survey of production managers, and leverage data on the orders placed to this firm by large international buyers.
Our results highlight how trade frictions shape production decisions inside the firm. In particular, they emphasize that suppliers to the global market, concentrated in developing countries, may be beholden to a small set of powerful buyers from developed countries. As a result, they may be driven to “misallocate” managerial skill in service of these relationships, but at the expense of productivity.
Image credits: Nayantara Parikh
Subscribe to the Good Business Lab Mailing List to receive updates on our current initiatives, progress reports, upcoming projects and our quarterly newsletter.