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Social Connections and Incentives in the Workplace: Evidence From Personnel Data

Social Connections and Incentives in the Workplace: Evidence From Personnel Data We present evidence on the effect of social connections between workers and managers on productivity in the workplace. To evaluate whether the existence of social connections is beneficial to the firm's overall performance, we explore how the effects of social connections vary with the strength of managerial incentives and worker's ability. To do so, we combine panel data on individual worker's productivity from personnel records with a natural field experiment in which we engineered an exogenous change in managerial incentives, from fixed wages to bonuses based on the average productivity of the workers managed. We find that when managers are paid fixed wages, they favor workers to whom they are socially connected irrespective of the worker's ability, but when they are paid performance bonuses, they target their effort toward high ability workers irrespective of whether they are socially connected to them or not. Although social connections increase the performance of connected workers, we find that favoring connected workers is detrimental for the firm's overall performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Econometrica Wiley

Social Connections and Incentives in the Workplace: Evidence From Personnel Data

Econometrica , Volume 77 (4) – Jul 1, 2009

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References (51)

Publisher
Wiley
Copyright
Copyright © 2009 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0012-9682
eISSN
1468-0262
DOI
10.3982/ECTA6496
Publisher site
See Article on Publisher Site

Abstract

We present evidence on the effect of social connections between workers and managers on productivity in the workplace. To evaluate whether the existence of social connections is beneficial to the firm's overall performance, we explore how the effects of social connections vary with the strength of managerial incentives and worker's ability. To do so, we combine panel data on individual worker's productivity from personnel records with a natural field experiment in which we engineered an exogenous change in managerial incentives, from fixed wages to bonuses based on the average productivity of the workers managed. We find that when managers are paid fixed wages, they favor workers to whom they are socially connected irrespective of the worker's ability, but when they are paid performance bonuses, they target their effort toward high ability workers irrespective of whether they are socially connected to them or not. Although social connections increase the performance of connected workers, we find that favoring connected workers is detrimental for the firm's overall performance.

Journal

EconometricaWiley

Published: Jul 1, 2009

Keywords: ; ;

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