TY - JOUR AU - Bender, Stefan AU - Bloom, Nicholas AU - Card, David AU - Van Reenen, John AU - Wolter, Stefanie TI - Management Practices, Workforce Selection and Productivity JF - National Bureau of Economic Research Working Paper Series VL - No. 22101 PY - 2016 Y2 - March 2016 DO - 10.3386/w22101 UR - http://www.nber.org/papers/w22101 L1 - http://www.nber.org/papers/w22101.pdf N1 - Author contact info: Stefan Bender Deutsche Bundesbank Research Data and Service Center (RDSC) Wilhelm-Epstein-Straße 14 60431 Frankfurt Germany Germany E-Mail: stefan.bender@bundesbank.de Nicholas Bloom Stanford University Department of Economics 579 Serra Mall Stanford, CA 94305-6072 Tel: 650/725-3266 Fax: 650/725-5702 E-Mail: nbloom@stanford.edu David Card Department of Economics 549 Evans Hall, #3880 University of California, Berkeley Berkeley, CA 94720-3880 Tel: 510/642-5222 Fax: 510/643-7042 E-Mail: card@econ.berkeley.edu John Van Reenen Department of Economics London School of Economics Houghton Street London, WC2A 2AE United Kingdom E-Mail: j.vanreenen@lse.ac.uk Stefanie Wolter Institute for Employment Research (IAB) Regensburger Str. 104 90478 Nuremberg Germany E-Mail: stefanie.wolter@iab.de M1 - published as Stefan Bender, Nicholas Bloom, David Card, John Van Reenen, Stefanie Wolter. "Management Practices, Workforce Selection, and Productivity," in Edward Lazear and Kathryn Shaw, organizers, "Firms and the Distribution of Income: The Roles of Productivity and Luck" Journal of Labor Economics, 36(S1) (2018) AB - Recent research suggests that much of the cross-firm variation in measured productivity is due to differences in use of advanced management practices. Many of these practices – including monitoring, goal setting, and the use of incentives – are mediated through employee decision-making and effort. To the extent that these practices are complementary with workers’ skills, better-managed firms will tend to recruit higher-ability workers and adopt pay practices to retain these employees. We use a unique data set that combines detailed survey data on the management practices of German manufacturing firms with longitudinal earnings records for their employees to study the relationship between productivity, management, worker ability, and pay. As documented by Bloom and Van Reenen (2007) there is a strong partial correlation between management practice scores and firm-level productivity in Germany. In our preferred TFP estimates only a small fraction of this correlation is explained by the higher human capital of the average employee at better-managed firms. A larger share (about 13%) is attributable to the human capital of the highest-paid workers, a group we interpret as representing the managers of the firm. And a similar amount is mediated through the pay premiums offered by better-managed firms. Looking at employee inflows and outflows, we confirm that better-managed firms systematically recruit and retain workers with higher average human capital. Overall, we conclude that workforce selection and positive pay premiums explain just under 30% of the measured impact of management practices on productivity in German manufacturing. ER -