The Role of Information Technology and Management in Shaping Productivity and Worker Income

Project Outcomes Statement

Partnering with the US Census Bureau, we implement a new survey of “structured” management practices and information technology on 35,000 manufacturing plants in 2015, supplementing the prior MOPS survey in 2010. We find an enormous dispersion of management practices across plants, with 40 percent of this variation across plants within the same firm. Management practices account for more than 20 percent of the variation in productivity, a similar, or greater, percentage as that accounted for by R&D, ICT, or human capital. Management practices are also critical in shaping firm level employment growth, innovation, exporting and investment in employee skills. We find evidence of two key drivers to improve management. The business environment, as measured by right-to-work laws, boosts incentive management practices. Learning spillovers, as measured by the arrival of large “Million Dollar Plants” in the county, increases the management scores of incumbents. It appears that large foreign multinationals provide major productivity and managerial spillovers to other local firms through the labor market and the supply chain.

Turning to information technology we find widespread variation in adoption, again with the best performing plants adopting the highest levels of technology. These plants also had the highest levels of decentralization, pushing decisions down to middle and lower managers and even employees. This suggests that the use of modern information technology not only improves plant and firm performance, but also increases the ability of workers to control their firm.

Finally, we also collected information on firms forecasting ability, finding a wide variation across firms. Some were extremely effective at forecasting future sales and employment growth, and these firms performed significantly better. Others struggled to make accurate forecasts, with lower associated performance. The major factors in shaping forecasting ability were the adoption of modern management practices and information technology, suggesting one path for these to drive superior performance is via their ability to aid firms in forecasting future market conditions.