Do Bosses Matter?

21 August 2012 at 1:46 pm 1 comment

| Peter Klein |

Do bosses matter? Stephen Marglin famously argued that management doesn’t affect productivity, just the share of output appropriated by managers. (I’ll take David Landes instead, thank you very much.) Despite a huge management literature on bosses, economists have not quite known how to answer the question. Ed Lazear, Kathryn Shaw (ironically, a former boss of mine), and Christopher Stanton have an interesting new take on this using detailed microdata, showing substantial effects of supervisor on worker productivity:

The Value of Bosses
Edward P. Lazear, Kathryn L. Shaw, Christopher T. Stanton
NBER Working Paper No. 18317, August 2012

Do supervisors enhance productivity? Arguably, the most important relationship in the firm is between worker and supervisor. The supervisor may hire, fire, assign work, instruct, motivate and reward workers. Models of incentives and productivity build at least some subset of these functions in explicitly, but because of lack of data, little work exists that demonstrates the importance of bosses and the channels through which their productivity enhancing effects operate. As more data become available, it is possible to examine the effects of people and practices on productivity. Using a company-based data set on the productivity of technology-based services workers, supervisor effects are estimated and found to be large. Three findings stand out. First, the choice of boss matters. There is substantial variation in boss quality as measured by the effect on worker productivity. Replacing a boss who is in the lower 10% of boss quality with one who is in the upper 10% of boss quality increases a team’s total output by about the same amount as would adding one worker to a nine member team. Using a normalization, this implies that the average boss is about 1.75 times as productive as the average worker. Second, boss’s primary activity is teaching skills that persist. Third, efficient assignment allocates the better bosses to the better workers because good bosses increase the productivity of high quality workers by more than that of low quality workers.

NB: For some reason, my graduate students are circulating this piece from last week’s WSJ.

Entry filed under: - Klein -, Management Theory, Recommended Reading, Strategic Management, Theory of the Firm. Tags: .

Journal of Organizational Design The Wisdom of Crowds

1 Comment Add your own

  • 1. stevepostrel  |  23 August 2012 at 9:41 pm

    That matching result is interesting. If there is complementarity between boss and employee quality, and actual market job assignments equilibrate efficiently, then we have another explanation for “persistent productivity differences between seemingly similar organizations” (as Bob Gibbons terms the phenomenon). Good workers will want to work with good bosses and vice versa, so the sorting mechanism will cause persistent differences in productivity.

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