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Opportunity Counts: Teams and the Effectiveness of Production Incentives

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Author Info
Brent Boning
Casey Ichniowski
Kathryn Shaw

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Abstract

This paper investigates the individual and joint effects of group incentive pay and problem-solving teams on productivity. To estimate models of adoption of these work practices and models of the effects of the work practices on productivity, we constructed a data set on the operations of 34 production lines in U.S. steel minimills. Through site visits and interviews, we collected longitudinal data including precise measures on productivity, work practices, and technology of each of these production lines. We find strong support for the proposition that problem-solving teams are an important means for increasing the effectiveness of group incentive pay plans in establishments with complex production processes. With regard to adoption of work practices, we find that problem-solving teams are adopted only in the presence of incentive pay plans, and that more technologically complex production lines are much more likely to adopt teams. The latter result implies that teams are more valuable in these types of production environments. We also present estimates of the productivity effects of adopting these work practices. Group-based incentive pay, on average, raises productivity, and the adoption of teams in addition to incentive pay leads to a further increase in productivity. The average effect of teams together with group incentives is economically important, corresponding to an annual increase of over 3000 additional tons of steel with a value of over $1.4 million. We also find that the productivity effect of teams is significantly larger in more complex production lines, consistent with the result that more complex production lines are more likely to adopt problem-solving teams. Finally, we show that our estimates of the productivity effects of these work practices are little changed by corrections for possible selectivity bias.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8306.

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Date of creation: May 2001
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Handle: RePEc:nbr:nberwo:8306

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Find related papers by JEL classification:
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Uschi Backes-Gellner, 2004. "Personnel Economics: An Economic Approach to Human Resources Management," Working Papers 0050, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Apr 2004. [Downloadable!]
    Other versions:
  2. Aradhna Aggarwal, 2007. "Impact of Special Economic Zones on Employment, Poverty and Human Development," Working Papers id:1111, esocialsciences.com. [Downloadable!]
  3. Kim, YoungGak, 2007. "A Survey on Intangible Capital," CEI Working Paper Series 2007-10, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  4. Morissette, René & Rosa, Julio, 2003. "Alternative Work Practices and Quit Rates: Methodological Issues and Empirical Evidence for Canada," Analytical Studies Branch Research Paper Series 2003199e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  5. Gustavo Crespi & Chiara Criscuolo & Jonathan Haskel, 2007. "Information Technology, Organisational Change and Productivity Growth: Evidence from UK Firms," CEP Discussion Papers dp0783, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  6. Derek C. Jones & Takao Kato, 2007. "The Impact of Teams on Output, Quality and Downtime: An Empirical Analysis Using Individual Panel Data," IZA Discussion Papers 2917, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Joseph R. Blasi & Richard B. Freeman & Chris Mackin & Douglas L. Kruse, 2008. "Creating a Bigger Pie? The Effects of Employee Ownership, Profit Sharing, and Stock Options on Workplace Performance," NBER Working Papers 14230, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Edward P. Lazear & Kathryn L. Shaw, 2007. "Personnel Economics: The Economist's View of Human Resources," NBER Working Papers 13653, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Douglas L. Kruse & Joseph R. Blasi & Rhokeun Park, 2008. "Shared Capitalism in the U.S. Economy? Prevalence, Characteristics, and Employee Views of Financial Participation in Enterprises," NBER Working Papers 14225, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Sandra E Black & Lisa M Lynch & Anya Krivelyova, 2003. "How Workers Fare When Employers Innovate," Working Papers 03-11, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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  11. Ann Bartel & Casey Ichniowski & Kathryn Shaw, 2004. "Using "Insider Econometrics" to Study Productivity," American Economic Review, American Economic Association, vol. 94(2), pages 217-223, May. [Downloadable!]
  12. Zwick, Thomas & Wolf, Elke, 2002. "Reassessing the Impact of High Performance Workplaces," ZEW Discussion Papers 02-07, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  13. Bauer, Thomas K. & Bender, Stefan, 2001. "Flexible Work Systems and the Structure of Wages: Evidence from Matched Employer-Employee Data," IZA Discussion Papers 353, Institute for the Study of Labor (IZA), revised Jul 2002. [Downloadable!]
  14. Black, Sandra E. & Lynch, Lisa M., 2005. "Measuring Organizational Capital in the New Economy," IZA Discussion Papers 1524, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  15. Aradhna Aggarwal, 2007. "Impact of Special Economic Zones on Employment, Poverty and Human Development," Indian Council for Research on International Economic Relations, New Delhi Working Papers 194, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
  16. Casey Ichniowski & Kathryn Shaw, 2003. "Beyond Incentive Pay: Insiders' Estimates of the Value of Complementary Human Resource Management Practices," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 155-180, Winter. [Downloadable!] (restricted)
  17. Sandra E. Black & Lisa M. Lynch, 2003. "What's driving the new economy?: the benefits of workplace innovation," Working Papers in Applied Economic Theory 2003-23, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  18. Ann Bartel & Casey Ichniowski & Kathryn Shaw & Ricardo Correa, 2007. "International Differences in the Adoption and Impact of New Information Technologies and New HR Practices: The Valve-Making Industry in the U.S. and U.K," NBER Working Papers 13651, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Crespi, Gustavo & Criscuolo, Chiara & Haskel, Jonathan, 2007. "Information Technology, Organisational Change and Productivity," CEPR Discussion Papers 6105, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  20. Rupert Sausgruber, 2005. "Testing for Team Spirit - An Experimental Study," Experimental 0508001, EconWPA. [Downloadable!]
  21. Lisa M. Lynch, 2007. "The Adoption and Diffusion of Organizational Innovation: Evidence for the U.S. Economy," IZA Discussion Papers 2819, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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