IDEAS home Printed from https://ideas.repec.org/a/ucp/jlabec/v25y2007p613-650.html
   My bibliography  Save this article

Opportunity Counts: Teams and the Effectiveness of Production Incentives

Author

Listed:
  • Brent Boning
  • Casey Ichniowski
  • Kathryn Shaw

Abstract

Using unique panel data on production lines in U.S. minimills, we analyze the adoption of problem-solving teams and group incentive pay and their effects on productivity. Almost every line ultimately adopts group incentives. However, problem-solving teams are found almost exclusively in lines with more complex production processes. Consistent with these patterns, fixed-effects models reveal increased productivity under group incentives in all lines, while teams raise productivity in lines with more complex production processes. This evidence indicates that teams give workers a valuable opportunity to solve problems in more complex production processes, while standard operating procedures appear to suffice elsewhere.

Suggested Citation

  • Brent Boning & Casey Ichniowski & Kathryn Shaw, 2007. "Opportunity Counts: Teams and the Effectiveness of Production Incentives," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 613-650.
  • Handle: RePEc:ucp:jlabec:v:25:y:2007:p:613-650
    DOI: 10.1086/519539
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/519539
    Download Restriction: Access to the online full text or PDF requires a subscription.

    File URL: https://libkey.io/10.1086/519539?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Itoh, Hideshi, 1994. "Job design, delegation and cooperation: A principal-agent analysis," European Economic Review, Elsevier, vol. 38(3-4), pages 691-700, April.
    2. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    3. Carmichael, H Lorne & MacLeod, W Bentley, 1993. "Multiskilling, Technical Change and the Japanese Firm," Economic Journal, Royal Economic Society, vol. 103(416), pages 142-160, January.
    4. Ann P. Bartel, 2004. "Human Resource Management and Organizational Performance: Evidence from Retail Banking," ILR Review, Cornell University, ILR School, vol. 57(2), pages 181-203, January.
    5. Ashenfelter, Orley C, 1978. "Estimating the Effect of Training Programs on Earnings," The Review of Economics and Statistics, MIT Press, vol. 60(1), pages 47-57, February.
    6. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 339-376.
    7. Jan Zabojnik, 2002. "Centralized and Decentralized Decision Making in Organizations," Journal of Labor Economics, University of Chicago Press, vol. 20(1), pages 1-22, January.
    8. Paul Osterman, 2000. "Work Reorganization in an Era of Restructuring: Trends in Diffusion and Effects on Employee Welfare," ILR Review, Cornell University, ILR School, vol. 53(2), pages 179-196, January.
    9. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    10. Paul Osterman, 1994. "How Common is Workplace Transformation and Who Adopts it?," ILR Review, Cornell University, ILR School, vol. 47(2), pages 173-188, January.
    11. George Baker & Robert Gibbons & Kevin J. Murphy, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1125-1156.
    12. Rosemary Batt, 1999. "Work Organization, Technology, and Performance in Customer Service and Sales," ILR Review, Cornell University, ILR School, vol. 52(4), pages 539-564, July.
    13. repec:eme:rlepps:v:18:y:1999:i:1999:p:177-242 is not listed on IDEAS
    14. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097, Elsevier.
    15. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
    16. Susan Athey & Scott Stern, 1998. "An Empirical Framework for Testing Theories About Complimentarity in Organizational Design," NBER Working Papers 6600, National Bureau of Economic Research, Inc.
    17. Heckman, James J, 1990. "Varieties of Selection Bias," American Economic Review, American Economic Association, vol. 80(2), pages 313-318, May.
    18. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
    19. Lazear, Edward P, 1999. "Globalisation and the Market for Team-Mates," Economic Journal, Royal Economic Society, vol. 109(454), pages 15-40, March.
    20. Black, Sandra E & Lynch, Lisa M, 1996. "Human-Capital Investments and Productivity," American Economic Review, American Economic Association, vol. 86(2), pages 263-267, May.
    21. Edward P. Lazear, 1999. "Personnel Economics: Past Lessons and Future Directions," NBER Working Papers 6957, National Bureau of Economic Research, Inc.
    22. John Paul Macduffie, 1995. "Human Resource Bundles and Manufacturing Performance: Organizational Logic and Flexible Production Systems in the World Auto Industry," ILR Review, Cornell University, ILR School, vol. 48(2), pages 197-221, January.
    23. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    24. Kreps, David M, 1997. "Intrinsic Motivation and Extrinsic Incentives," American Economic Review, American Economic Association, vol. 87(2), pages 359-364, May.
    25. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts and the Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 39-84.
    26. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
    27. Milgrom, Paul & Roberts, John, 1995. "Complementarities and fit strategy, structure, and organizational change in manufacturing," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 179-208, April.
    28. Zvi Griliches, 1957. "Specification Bias in Estimates of Production Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 39(1), pages 8-20.
    29. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-817, August.
    30. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall.
    31. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    32. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
    33. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-991, September.
    34. Daniel S. Nagin & James B. Rebitzer & Seth Sanders & Lowell J. Taylor, 2002. "Monitoring, Motivation, and Management: The Determinants of Opportunistic Behavior in a Field Experiment," American Economic Review, American Economic Association, vol. 92(4), pages 850-873, September.
    35. Donald W. K. Andrews & Marcia M. A. Schafgans, 1998. "Semiparametric Estimation of the Intercept of a Sample Selection Model," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 497-517.
    36. William Bentley MacLeod & Daniel Parent, 1998. "Job Characteristics and the Form of Compensation," CIRANO Working Papers 98s-08, CIRANO.
    37. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," Econometrica, Econometric Society, vol. 66(5), pages 1017-1098, September.
    38. Douglas L. Kruse, 1993. "Profit Sharing: Does It Make a Difference?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ps, january-j.
    39. Michael C. Jensen & William H. Heckling, 1995. "Specific And General Knowledge, And Organizational Structure," Journal of Applied Corporate Finance, Morgan Stanley, vol. 8(2), pages 4-18, June.
    40. Ann Bartel & Casey Ichniowski & Kathryn Shaw, 2007. "How Does Information Technology Affect Productivity? Plant-Level Comparisons of Product Innovation, Process Improvement, and Worker Skills," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1721-1758.
    41. Thomas N. Hubbard, 2003. "Information, Decisions, and Productivity: On-Board Computers and Capacity Utilization in Trucking," American Economic Review, American Economic Association, vol. 93(4), pages 1328-1353, September.
    42. Jeffrey B. Arthur, 1992. "The Link between Business Strategy and Industrial Relations Systems in American Steel Minimills," ILR Review, Cornell University, ILR School, vol. 45(3), pages 488-506, April.
    43. George P. Baker & Thomas N. Hubbard, 2003. "Make Versus Buy in Trucking: Asset Ownership, Job Design, and Information," American Economic Review, American Economic Association, vol. 93(3), pages 551-572, June.
    44. Prendergast, Canice J, 1995. "A Theory of Responsibility in Organizations," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 387-400, July.
    45. David H. Autor & Frank Levy & Richard J. Murnane, 2002. "Upstairs, Downstairs: Computers and Skills on Two Floors of a Large Bank," ILR Review, Cornell University, ILR School, vol. 55(3), pages 432-447, April.
    46. Casey Ichniowski & Kathryn Shaw, 1995. "Old Dogs and New Tricks: Determinants of the Adoption of Productivity-Enhancing Work Practices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995 Micr), pages 1-65.
    47. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-348, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kathryn Shaw, 2004. "The Human Resources Revolution: Is It a Productivity Driver?," NBER Chapters, in: Innovation Policy and the Economy, Volume 4, pages 69-114, National Bureau of Economic Research, Inc.
    2. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    3. Michael Waldman, 2012. "Theory and Evidence in Internal Labor Markets," Introductory Chapters, in: Robert Gibbons & John Roberts (ed.),The Handbook of Organizational Economics, Princeton University Press.
    4. Shaw, Kathryn, 2009. "Insider econometrics: A roadmap with stops along the way," Labour Economics, Elsevier, vol. 16(6), pages 607-617, December.
    5. Derek C. Jones & Takao Kato, 2011. "The Impact of Teams on Output, Quality, and Downtime: An Empirical Analysis Using Individual Panel Data," ILR Review, Cornell University, ILR School, vol. 64(2), pages 215-240, January.
    6. Casey Ichniowski & Kathryn L. Shaw, 2009. "Insider Econometrics: Empirical Studies of How Management Matters," NBER Working Papers 15618, National Bureau of Economic Research, Inc.
    7. Sinan Aral & Erik Brynjolfsson & Lynn Wu, 2012. "Three-Way Complementarities: Performance Pay, Human Resource Analytics, and Information Technology," Management Science, INFORMS, vol. 58(5), pages 913-931, May.
    8. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    9. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883.
    10. Luis Garicano & Richard A. Posner, 2005. "Intelligence Failures: An Organizational Economics Perspective," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 151-170, Fall.
    11. Luis Garicano & Luis Rayo, 2016. "Why Organizations Fail: Models and Cases," Journal of Economic Literature, American Economic Association, vol. 54(1), pages 137-192, March.
    12. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 19, pages 1697-1767, Elsevier.
    13. Flores-Fillol, Ricardo & Iranzo, Susana & Mane, Ferran, 2017. "Teamwork and delegation of decisions within the firm," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 1-29.
    14. Daniel Parent, 2001. "Incentive Pay in the United States: Its Determinants and Its Effects," CIRANO Working Papers 2001s-04, CIRANO.
    15. Pablo Arocena & Mikel Villanueva, 2003. "Access as a Motivational Device: Implications for Human Resource Management," Kyklos, Wiley Blackwell, vol. 56(2), pages 199-221, May.
    16. Edward P. Lazear & Paul Oyer, 2012. "Personnel Economics," Introductory Chapters, in: Robert Gibbons & John Roberts (ed.),The Handbook of Organizational Economics, Princeton University Press.
    17. Carstensen, Vivian, 2002. "Reorganization of Firms and Productivity: A Treatment Effects Approach," Hannover Economic Papers (HEP) dp-257, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    18. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    19. Guido Friebel & Matthias Heinz & Miriam Krueger & Nikolay Zubanov, 2017. "Team Incentives and Performance: Evidence from a Retail Chain," American Economic Review, American Economic Association, vol. 107(8), pages 2168-2203, August.
    20. Uwe Jirjahn & Jens Mohrenweiser, 2019. "Performance Pay and Applicant Screening," British Journal of Industrial Relations, London School of Economics, vol. 57(3), pages 540-575, September.
    21. Gosnell, Greer & Metcalfe, Robert & List, John A, 2016. "A new approach to an age-old problem: solving externalities by incenting workers directly," LSE Research Online Documents on Economics 84331, London School of Economics and Political Science, LSE Library.

    More about this item

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jlabec:v:25:y:2007:p:613-650. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://www.journals.uchicago.edu/JOLE .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JOLE .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.