Automation and the Plight of Young Workers: Evidence from Telephone Operation in the Early 20th Century

Gross Daniel P. (Harvard Business School)
Feigenbaum James (Boston University)

Abstract : Telephone operation was one of the most common jobs for young American women in the early 1900s. Between 1920 and 1940, AT&T adopted dial service in over half of U.S. telephone exchanges, automating away a legion of operators. We show that upon a city's adoption of dial, the number of young women in subsequent cohorts working as telephone operators immediately and permanently dropped by 50-80%, accounting for 2% of this population's employment. However, the shock did not reduce future cohorts' employment: the decline in demand for operators was instead counteracted by employment growth in other middle-skill white-collar jobs like secretarial work and lower-skill service jobs. Using a new genealogy-based census linking method, we show that existing telephone operators were pushed out of the telephone industry and were more likely to either become operators at private switchboards or leave the labor force entirely. Conditional on working, displaced operators were slightly more likely to be in lower-paying occupations.

Hiring Dreamers

Florian Englmaier (LMU Munich)
Tobias Kretschmer (LMU Munich)
Ester Manna (Universitat de Barcelona and BEAT)

Abstract : Why would firms hire dreamers, namely managers who overestimate the impact of their effort on product quality, given that this may lead to suboptimal choices? Is this related to the degree of product market competition? We answer these questions by studying the performance of dreamers under several market structures. A monopolistic firm always benefits from the dreamer's mistaken beliefs about the impact of his effort on quality by offering him a contract that entails a high bonus and a low fixed wage. Firms also hire dreamers in the presence of competition but they do not benefit from their availability. Since in equilibrium all firms hire dreamers to stay competitive in the market, total revenues are not affected by the managers' overoptimism, while monetary compensation positively depends on it. We also examine an environment in which there is competition for dreamers, i.e. there are more firms than overoptimistic managers, and firms have asymmetric production costs. When their hiring decisions are made simultaneously, efficient firms reinforce the existing competitive advantage by hiring dreamers. Conversely, under sequential offers, inefficient firms hire dreamers to catch up with the efficient firms.

The Costs of Workplace Favoritism: Evidence from Promotions in Chinese High Schools

Xuan Li (HKUST)

Abstract : This paper studies the productivity consequences of favoritism in employee promotions within organizations. Using data from public high schools in four Chinese cities, I first show that teachers with hometown or college ties to the school principal are twice as likely to be promoted, after controlling for characteristics on their application profiles and their value-added in teaching. I then use the results from a survey in which I asked teachers to select anonymous peers to promote from a pool of applicants applying for promotion to infer each teacher’s revealed fairness views regarding promotion qualifications. Contrasting these with actual past promotions in turn allows me to measure if and when a teacher might have observed unfair promotions in her own school in the past. Exposure to unfair promotions adversely affects non-applicant teachers’ output, lowering their value-added and raising the probability that high-value-added teachers quit. The value-added effect appears to be driven primarily by teachers’ social preferences for peer workers and the consequent erosion of their morale when peers suffer unfair treatment, while the quitting effect comes mainly from non-favored prospective applicants’ career concerns as they learn about the principal’s bias and leave due to poor promotion prospects. These adverse spillover incentive effects lead to a substantial reduction in school-wide output, which is only slightly mitigated by increased productivity among favored teachers. Finally, a transparency reform that required principals to disclose to their peers the profiles of teachers that apply for promotion reduced the principals’ bias and improved the overall productivity of schools.

Positive Selection of Employees

Zhenda Yin (Peking University)
Michael Waldman (Cornell University)

Abstract : This paper takes a step towards bridging the theory of internal labor market (ILM) and external labor market (ELM) by studying an integrative framework with job changes both inside and across firms. In particular, we consider a dynamic model, whereby firms use retention and promotion as the personnel policy to positively select the workforce (workers) concerning utility of working and abilities. The equilibrium captures three sets of empirical findings in a single setting. That is, (1) standard ILM findings (concerning the pay and promotion pattern inside firms); (2) standard ELM findings (concerning the pay and mobility pattern across firms); (3) standard, yet unexplained, findings on the “interaction” of ILM and ELM (concerning effects of promotion on exit rates and effects of entry routes on career paths and workforce compositions).