Building a Productive Workforce: the Role of Structured Management Practices

Abstract: This paper examines the role of firm management practices in assembling a high quality and productive workforce. A large conceptual and theoretical literature describing ``what managers do,'' suggests management practices may have a large affect on the way firms assemble a high quality workforce. However, models of the labor market disregard management as an important feature of job matching and job mobility. To better understand whether structured management matters in labor markets, we match survey data that measures how firms manage people, measures of worker quality and job lows from linked employer-employee data. We have three key findings: first, the quality of production workers and managers fixed effects, and the use of structured management practices, are all positively correlated with firm productivity. Second, well-managed firms hire a larger share of their new recruits from the top of the worker quality distribution, and are better at retaining those workers. Third, well-managed firms fire less often, and are better at targeting low-quality workers for termination.