Culture of Trust and Division of Labor

41 Pages Posted: 27 Apr 2015

See all articles by Stephan Meier

Stephan Meier

Federal Reserve Bank of Boston; IZA Institute of Labor Economics; Columbia Business School - Management

Matthew Stephenson

Columbia Business School - Management

Abstract

Firms exhibit heterogeneity in size, productivity, and internal structure, and this is true even within the same industry. It has been thought since the time of Adam Smith that a firm's internal structure affects its productivity through the channel of gains from specialization. Our paper provides evidence of a link between an organization's culture – specifically the trust environment – and its internal structure. We show experimentally that exogenously imposed culture endogenously leads to variation in organizational form. We prime trust using past performance from a pilot study and demonstrate that the level of trust within an organization affects division of labor and consequently organizational productivity. This evidence is consistent with a cross-country link between trust and the division of labor that we observe in data from the European Social Survey. Our results point to a mechanism that can help explain existing results on the connection between generalized trust and growth. It also points to an important determinant of a firm's internal structure: corporate culture (of trust).

Keywords: trust, division of labor, organizational structure

JEL Classification: C90, D20, D03

Suggested Citation

Meier, Stephan and Stephenson, Matthew, Culture of Trust and Division of Labor. IZA Discussion Paper No. 8974, Available at SSRN: https://ssrn.com/abstract=2598914

Stephan Meier (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

Matthew Stephenson

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

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