Social Connections and Incentives in the Workplace: Evidence from Personnel Data
AbstractWe present evidence on the effect of social connections between workers and managers on productivity in the workplace. To evaluate whether the existence of social connections is beneficial to the firm's overall performance, we explore how the effects of social connections vary with the strength of managerial incentives and worker's ability. To do so, we combine panel data on individual worker's productivity from personnel records with a natural field experiment in which we engineered an exogenous change in managerial incentives, from fixed wages, to bonuses based on the average productivity of the workers managed. We find that when managers are paid fixed wages, they favor workers to whom they are socially connected irrespective of the worker's ability, but when they are paid performance bonuses, they target their effort towards high ability workers irrespective of whether they are socially connected to them or not. Although social connections increase the performance of connected workers, we find that favoring connected workers is detrimental for the firm's overall performance.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3917.
Length: 48 pages
Date of creation: Dec 2008
Date of revision:
Publication status: published in: Econometrica, 2009, 77 (4), 1047-1094
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Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Other versions of this item:
- Oriana Bandiera & Iwan Barankay & Imran Rasul, 2009. "Social Connections and Incentives in the Workplace: Evidence From Personnel Data," Econometrica, Econometric Society, vol. 77(4), pages 1047-1094, 07.
- Bandiera, Oriana & Barankay, Iwan & Rasul, Imran, 2009. "Social Connections and Incentives in the Workplace: Evidence from Personnel Data," CEPR Discussion Papers 7114, C.E.P.R. Discussion Papers.
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
- M54 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Labor Management
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-31 (All new papers)
- NEP-BEC-2009-01-31 (Business Economics)
- NEP-CBE-2009-01-31 (Cognitive & Behavioural Economics)
- NEP-EXP-2009-01-31 (Experimental Economics)
- NEP-LAB-2009-01-31 (Labour Economics)
- NEP-SOC-2009-01-31 (Social Norms & Social Capital)
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