Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation

46 Pages Posted: 24 Jul 2001

See all articles by Barton H. Hamilton

Barton H. Hamilton

Washington University, Saint Louis - John M. Olin School of Business

Jackson A. Nickerson

Washington University in St. Louis - John M. Olin Business School

Hideo Owan

University of Tokyo

Multiple version iconThere are 2 versions of this paper

Date Written: May 2001

Abstract

Teams have become a mainstay for the organization of work. Economic models of teams focus on productivity declines due to free-riding and on mechanisms to avoid it. Unfortunately, few empirical studies have systematically examined the impact of teams on output. Furthermore, the literature does not consider the potential effect of worker heterogeneity on productivity or worker selection for, and participation in, teams. In this paper we identify the productivity and participation implications of five potential behavioral responses (free-riding being one) to the adoption of team incentives with heterogeneous workers. Using a novel data set from the garment industry, we empirically examine worker productivity and participation as a garment plant shifted from an individual piece rate to a group piece rate production system over three years. The adoption of teams at the plant improved worker productivity by 14% on average, even after controlling for systematic selection of high-ability workers onto teams. Productivity improvement was greatest for the earliest teams and diminished as more workers in the firm engaged in team production. Also, high-ability workers not only tended to join teams first, despite a loss in earnings in many cases, but also were no more likely to subsequently leave the firm after joining a team than low-ability workers, suggesting strong non-pecuniary benefits associated with teamwork. Finally, more heterogeneous teams were more productive, holding average ability constant, and high-ability workers appeared to have a stronger influence on team productivity than did low-ability workers. The last finding is consistent with explanations emphasizing mutual team learning and intra-team bargaining.

Keywords: teams, productivity, free-riding, learning, bargaining, sorting, compensating differentials

JEL Classification: J3, D2

Suggested Citation

Hamilton, Barton H. and Nickerson, Jackson A. and Owan, Hideo, Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation (May 2001). Available at SSRN: https://ssrn.com/abstract=277309 or http://dx.doi.org/10.2139/ssrn.277309

Barton H. Hamilton (Contact Author)

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive, Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-8057 (Phone)
314-935-6359 (Fax)

HOME PAGE: http://www.olin.wustl.edu/faculty/hamiltonb/

Jackson A. Nickerson

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6366 (Phone)
314-935-6359 (Fax)

Hideo Owan

University of Tokyo ( email )

Hongo 7-3-1
Tokyo, TOKYO 113-0033
Japan

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