No Line Left Behind: Assortative Matching Inside the Firm
How do firms pair workers with managers, and which constraints affect the allocation of labor within the firm? We characterize the sorting pattern of managers to workers in a large readymade garment manufacturer in India, and then explore potential drivers of the observed allocation. Workers in this firm are organized into production lines, each supervised by a manager. We exploit the high degree of worker mobility across lines, together with worker-level productivity data, to estimate the sorting of workers to managers. We find negative assortative matching (NAM) -that is, better managers tend to match with worse workers, and vice versa. This stands in contrast to our estimates of the production technology, which reveal that if the firm were to positively sort, productivity would increase by 1 to 4 percent across the six factories in our data. Coupling these findings with a survey of managers and with data on multinational brands and the orders they place, we document that NAM arises, at least in part, because the value of buyer relationships imposes minimum productivity constraints on each production line. Our results emphasize that suppliers to the global market, when they are beholden to a small set of powerful buyers, may be driven to allocate managerial skill to service these relationships, even at the expense of productivity.
We would like to thank Francesco Amodio, Oriana Bandiera, Tito Boeri, Thomas Chaney, Karim Fajury, Tzuo Hann Law, Andrea Ichino, Philippe Kircher, Rem Koning, Claudio Labanca, Fabian Lange, Ed Lazear, Hong Luo, Alex MacKay, Monica Morlacco, Chris Moser, Tommaso Porzio, Andrea Prat, Geert Ridder, Raffaella Sadun, Kathryn Shaw, Chris Stanton and numerous seminar and conference participants for helpful comments and discussions, including participants at the 2019 NBER Summer Institute (Personnel group). We also thank Smit Gade and Varun Jagannath for help in conducting manager interviews. All errors are our own.. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.