Differences in managerial quality likely contribute significantly to firm productivity gaps between firms in developed and developing countries. But how specifically does management affect productivity?
The authors model one potential channel for this effect: good managers are better able to deal with shocks to worker productivity. The authors test the model’s predictions in an Indian garment factory, using hourly data on worker and line productivity, rich survey measures of managerial quality, and exogenous variation in pollution exposure, an important shock to worker effort.
The authors find that lines supervised by higher quality managers (those better at identifying and solving production issues in general, and those who specifically monitor production more frequently and are more likely to replace underperforming workers) are more productive and exhibit more frequent reallocation of workers across tasks. The authors also find that productivity suffers in response to higher pollution exposure, and that the frequency of task reallocation rises as pollution deviates from median levels.
Moreover, lines supervised by higher quality managers suffer substantially smaller losses in the face of higher pollution exposure, by way of increased task reallocation.
Finally, the authors validate our indices of managerial quality against a measure of supervisor TFP, and provide descriptive evidence of the specific practices, management styles, and personality traits that contribute to managerial quality.
This research was funded under the Private Enterprise Development in Low-Income Countries (PEDL) Programme
Adhvaryu, A., Kala, N., Nyshadham, A. Management and Shocks to Worker Productivity (2016) 57 pp