Findings

Management advice

Kevin Lewis

May 18, 2016

Do Unions Affect Innovation?

Daniel Bradley, Incheol Kim & Xuan Tian

Management Science, forthcoming

Abstract:
We examine the effect of unionization on firm innovation, using a regression discontinuity design that relies on “locally” exogenous variation generated by elections that pass or fail by a small margin of votes. Passing a union election results in an 8.7% (12.5%) decline in patent quantity (quality) three years after the election. A reduction in R&D expenditures, reduced productivity of inventors, and departures of innovative inventors appear to be plausible underlying mechanisms through which unionization impedes firm innovation. In response to unionization, firms move their innovation activities away from states where union elections win. Our paper provides new insights into the real effects of unionization.

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Social Responsibility Messages and Worker Wage Requirements: Field Experimental Evidence from Online Labor Marketplaces

Vanessa Burbano

Organization Science, forthcoming

Abstract:
This paper examines the effects of employer social responsibility on the wages workers demand through randomized field experiments in two online labor marketplaces. Workers were recruited for short-term jobs and I manipulated whether or not they received information about the employer’s social responsibility. I then observed the payment workers were willing to accept for the job. In the first experiment, information about the employer’s social responsibility marginally reduced prospective workers’ wage requirements on average, and had a significant effect on the highest performers, who were willing to give up the wage differential they would otherwise demand. In the second, prospective workers submitted 44% lower wage bids for the same job after learning about the employer’s social responsibility. This paper provides causal empirical evidence of a revealed preference for social responsibility in the workplace, and of a greater preference amongst the highest performers. More broadly, it provides evidence that workers value purpose and meaningfulness at work, and demonstrates that workers are willing to give up pecuniary benefits for non-pecuniary benefits. It furthermore highlights heterogeneity in worker preferences for non-pecuniary benefits by worker performance type.

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Productivity and Selection of Human Capital with Machine Learning

Aaron Chalfin et al.

American Economic Review, May 2016, Pages 124-127

Abstract:
Economists have become increasingly interested in studying the nature of production functions in social policy applications, with the goal of improving productivity. Traditionally models have assumed workers are homogenous inputs. However, in practice, substantial variability in productivity means the marginal productivity of labor depends substantially on which new workers are hired -- which requires not an estimate of a causal effect, but rather a prediction. We demonstrate that there can be large social welfare gains from using machine learning tools to predict worker productivity, using data from two important applications - police hiring and teacher tenure decisions.

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How Does Reducing Pay Dispersion Affect Employee Behavior?

Conor Brown et al.

University of Pittsburgh Working Paper, March 2016

Abstract:
Prior research suggests that pay dispersion among employees can cause lower-paid employees to feel unfairly treated and thus lower their effort. Recently, some firms have reduced pay dispersion by raising lower-paid employee’s wages in an attempt to mitigate this effect. However, popular press articles suggest that reducing pay dispersion could also cause higher-paid employees to leave the firm. We conduct a series of experiments to examine the effect of reduced pay dispersion on lower-paid employees’ effort and higher-paid employees’ turnover intentions. In Experiment 1, we find that reducing pay dispersion can increase lower-paid employees’ effort by increasing their perceived pay fairness. We also show that it is the reduction in pay dispersion rather than merely the increase in the lower-paid employees’ wages that yields these results. In Experiment 2, we replicate the results of our first experiment without collecting data on perceptions of pay fairness to ensure that the results of the first experiment were not the result of demand effects. Finally, in Experiment 3 we find that, contrary to concerns expressed in the popular press, higher-paid employees indicate that they are not more likely to leave the firm for a comparable job when lower-paid employees’ wages are increased, and may even be less likely to leave. Our results suggest that firms should consider whether the benefit of increased effort from the lower-paid employees is worth the extra cost they incur by increasing their wages.

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More Time, More Work: How Time Limits Bias Estimates of Project Duration and Scope

Indranil Goswami & Oleg Urminsky

University of Chicago Working Paper, January 2016

Abstract:
We propose that time limits systematically bias predictions of workers’ completion times, even when the limits are uninformative and cannot affect worker’s behavior. We show evidence for this bias in controlled laboratory studies and in a field survey. We find that longer time limits contribute to a misperception that the task involves more work, even for experienced managers making estimates in a familiar setting. This scope and duration bias has important behavioral implications, including an excessive preference for flat fee compensation contracts over contracts based on time spent working.

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Fifty Shades of Corporate Culture

William David Grieser et al.

Tulane University Working Paper, March 2016

Abstract:
We develop a new measure of integrity as it relates to corporate culture - the number of employees who use corporate emails to register for a website that facilitates extramarital affairs. This measure is associated with firm-level unethical behavior: it predicts a greater probability of SEC enforcement actions for accounting misstatements, and lower corporate ethics ratings by external analysts. However, consistent with research in psychology, we find that the measure also predicts more innovation (R&D intensity, successful patenting rates, subsequent patent citations, and patent diversity) and risk-taking (leverage, volatility, probability of default). Our results suggest that it is difficult to engineer a perfect corporate culture due to potential trade-offs between employee creativity, risk-taking, and integrity.

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Private Equity and Workers’ Career Paths: The Role of Technological Change

Ashwini Agrawal & Prasanna Tambe

Review of Financial Studies, forthcoming

Abstract:
We analyze a new dataset on workers’ career paths to examine whether private equity (PE) investments can have positive spillover effects on workers. We study leveraged buyouts in the context of recent information technology (IT) diffusion, and find evidence supporting the argument that many employees of companies acquired by PE investors gain transferable, IT-complementary human capital. Our estimates indicate that these workers experience increases in both long-run employability and wages relative to what they would have realized in the absence of PE investment. The findings underscore PE’s role in mitigating the effects of workforce skill obsolescence resulting from technological change.

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The Rapid Adoption of Data-Driven Decision-Making

Erik Brynjolfsson & Kristina McElheran

American Economic Review, May 2016, Pages 133-139

Abstract:
We provide a systematic empirical study of the diffusion and adoption patterns of data-driven decision making (DDD) in the U.S. Using data collected by the Census Bureau for a large representative sample of manufacturing plants, we find that DDD rates nearly tripled (11%-30%) between 2005 and 2010. This rapid diffusion, along with results from a companion paper, are consistent with case-based evidence that DDD tends to be productivity-enhancing. Yet certain plants are significantly more likely to adopt than others. Key correlates of adoption are size, presence of potential complements such as information technology and educated workers, and firm learning.

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Complementary or Competing Climates? Examining the Interactive Effect of Service and Ethical Climates on Company-Level Financial Performance

Adam Myer, Christian Thoroughgood & Susan Mohammed

Journal of Applied Psychology, forthcoming

Abstract:
By bending rules to please their customers, companies with high service climates may be less ethical but ultimately more profitable. In this article, we pose the question of whether being ethical comes at a cost to profits in customer-oriented firms. Despite the organizational reality that multiple climates coexist at a given time, research has largely ignored these types of questions, and the simultaneous analysis of multiple climate dimensions has received little empirical attention to date. Given their scientific and practical importance, this study tested complementary and conflicting perspectives regarding interactions between service (outcome-focused) and ethical (process-focused) climates on company-level financial performance. Drawing on a sample of 16,862 medical sales representatives spread across 77 subsidiary companies of a large multinational corporation in the health care product industry, we found support for a complementary view. More precisely, results revealed that profitability was enhanced, not diminished, in service-oriented firms that also stressed the importance of ethics. Results suggest studying the interactive effects of multiple climates is a more fruitful approach than examining main effects alone.

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Are CEOs Different? Characteristics of Top Managers

Steven Kaplan & Morten Sorensen

University of Chicago Working Paper, February 2016

Abstract:
We use a data set of over 2,600 executive assessments to study thirty individual characteristics of candidates for top executive positions – CEO, CFO, COO and others. Candidate characteristics can be classified by four primary factors: general ability, execution skills, charisma and strategic skills. CEO candidates tend to score higher on all four of these factors; CFO candidates score lower. Hired candidates score higher than all assessed candidates on interpersonal skills (for each job category) suggesting that such skills are important in the selection process. Scores on the four factors also predict future career progression. Non-CEO candidates who score higher on the four factors are subsequently more likely to become CEOs. The patterns are qualitatively similar for public, private equity and venture capital owned companies. We do not find economically large differences in the four factors for men and women. Women, however, are ultimately less likely to become CEOs holding the four factors constant.

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Executive Compensation in American Unions

Kevin Hallock & Felice Klein

Industrial Relations, April 2016, Pages 219–234

Abstract:
We explore compensation of labor union leaders using U.S. panel data on more than 75,000 organization-years from 2000 to 2007. We find that membership, estimated average wages, and dues are strongly related to the compensation of the leaders of American labor unions, even after controlling for organization size and organization fixed effects. That is, within the same union over time, higher levels of these measures are associated with higher levels of pay for union leaders.

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Balancing on the Creative Highwire: Forecasting the Success of Novel Ideas in Organizations

Justin Berg

Administrative Science Quarterly, forthcoming

Abstract:
Betting on the most promising new ideas is key to creativity and innovation in organizations, but predicting the success of novel ideas can be difficult. To select the best ideas, creators and managers must excel at creative forecasting, the skill of predicting the outcomes of new ideas. Using both a field study of 339 professionals in the circus arts industry and a lab experiment, I examine the conditions for accurate creative forecasting, focusing on the effect of creators’ and managers’ roles. In the field study, creators and managers forecasted the success of new circus acts with audiences, and the accuracy of these forecasts was assessed using data from 13,248 audience members. Results suggest that creators were more accurate than managers when forecasting about others’ novel ideas, but not their own. This advantage over managers was undermined when creators previously had poor ideas that were successful in the marketplace anyway. Results from the lab experiment show that creators’ advantage over managers in predicting success may be tied to the emphasis on both divergent thinking (idea generation) and convergent thinking (idea evaluation) in the creator role, while the manager role emphasizes only convergent thinking. These studies highlight that creative forecasting is a critical bridge linking creativity and innovation, shed light on the importance of roles in creative forecasting, and advance theory on why creative success is difficult to sustain over time.

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Does It Pay to Build Through the Draft in the National Basketball Association?

Akira Motomura et al.

Journal of Sports Economics, June 2016, Pages 501-516

Abstract:
Many National Basketball Association executives and analysts claim that the best way to contend for a championship is to get very high draft picks, which may require losing many games. We test whether building through the draft promotes winning in several ways. We test whether having more and higher draft picks promotes improvement and whether giving draft picks more playing time helps teams win more. We find that the draft is not necessarily the best road to success. An excellent organization and General Manager better enable teams to succeed even without high draft picks.

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Recognizing “Me” Benefits “We”: Investigating the Positive Spillover Effects of Formal Individual Recognition in Teams

Ning Li et al.

Journal of Applied Psychology, forthcoming

Abstract:
Many organizations use formal recognition programs (e.g., “employee of the month”) as a way to publically acknowledge an individual employee’s outstanding performance and motivate continued high performance. However, it remains unclear whether emphasizing individual achievement in a team context is beneficial or detrimental for recipients’ teammates and, by extension, the team as a whole. Drawing on a social influence perspective, we examine potential spillover effects of individual formal recognition programs in teams. We hypothesize that a single team member’s recognition will produce positive spillover effects on other team members’ performance, as well as overall team performance, via social influence processes, especially when the award recipient is located in a central position in a team. Findings from 2 lab experiments of 24 teams and 40 teams (Study 1 and Study 2, respectively) and a field experiment of 52 manufacturing teams (Study 3) reveal that formally recognizing a team member leads to positive changes in her/his teammates’ individual and collective performance. Thus, formal social recognition programs can potentially provide a motivational effect beyond individual recipients.

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Whistleblowing in Audit Firms: Do Explicit Protections from Retaliation Activate Implicit Threats of Reprisal?

James Wainberg & Stephen Perreault

Behavioral Research in Accounting, Spring 2016, Pages 83-93

Abstract:
Despite the increasing number of statutory protections now provided to whistleblowers, fear of reprisal remains a primary reason why individuals fail to report misconduct. In order to alleviate such fears and encourage reporting, hotline policies often describe explicit whistleblower protections from specific types of retaliation (e.g., harassment, threats or intimidation, loss of job, etc.). However, we posit that such vivid descriptions may actually achieve the opposite of their intended effect by increasing the salience of retaliatory threats, thereby discouraging whistleblower reporting. We conduct an experiment and find evidence that when explicit protections are added to an audit firm's whistleblower hotline policy, auditors assess the risk of reporting as higher and, as a result, are less likely to indicate that the misconduct will be reported through the hotline. To our knowledge, our study is the first to demonstrate that offering explicit protections to whistleblowers can have these unintended and counter-intuitive consequences.

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The Structure of Internal Job Mobility and Organizational Wage Inequality

Steve McDonald & Richard Benton

Research in Social Stratification and Mobility, forthcoming

Abstract:
The movement of people among jobs within an organization reflects a process of relational position-taking − a contest among individuals for valued resources. The structure of this mobility offers clues regarding the relational dynamics associated with position-taking and how these processes might vary across low and high inequality organizations. We explore these issues using data on intra-organizational mobility networks from 7347 workers in 428 positions in 11 distribution centers from a national grocery store chain. Exponential random graph models are used to identify the local network features that characterize each organization’s pattern of job mobility. This approach is then supplemented with meta-regression that examines the extent to which those network features are associated with organizational inequality (the wage gap between supervisors and non-supervisors). Organizational inequality is unrelated to the presence of purely structural mobility features (density, reciprocity, or transitivity), but instead is characterized by the confluence of mobility structure and positional hierarchy. The findings demonstrate that workers have fewer mobility pathways into high wage jobs in high inequality organizations than in low inequality organizations.

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Initial Investigation Into Computer Scoring of Candidate Essays for Personnel Selection

Michael Campion et al.

Journal of Applied Psychology, forthcoming

Abstract:
Emerging advancements including the exponentially growing availability of computer-collected data and increasingly sophisticated statistical software have led to a “Big Data Movement” wherein organizations have begun attempting to use large-scale data analysis to improve their effectiveness. Yet, little is known regarding how organizations can leverage these advancements to develop more effective personnel selection procedures, especially when the data are unstructured (text-based). Drawing on literature on natural language processing, we critically examine the possibility of leveraging advances in text mining and predictive modeling computer software programs as a surrogate for human raters in a selection context. We explain how to “train” a computer program to emulate a human rater when scoring accomplishment records. We then examine the reliability of the computer’s scores, provide preliminary evidence of their construct validity, demonstrate that this practice does not produce scores that disadvantage minority groups, illustrate the positive financial impact of adopting this practice in an organization (N ∼ 46,000 candidates), and discuss implementation issues. Finally, we discuss the potential implications of using computer scoring to address the adverse impact-validity dilemma. We suggest that it may provide a cost-effective means of using predictors that have comparable validity but have previously been too expensive for large-scale screening.

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Applicant reactions as a function of test length: Is there reason to fret over using longer tests?

Andrew Speer, Brandon King & Michael Grossenbacher

Journal of Personnel Psychology, Spring 2016, Pages 15-24

Abstract:
This study investigated how the length of preemployment assessments affects applicant reactions to the testing process and organization. Using a between-subjects design, participants took one of four assessments (short personality, long personality, short cognitive, long cognitive) where they were incentivized to perform well, followed by a survey assessing perceptions of procedural justice, organizational attractiveness, and likelihood of accepting a job offer. Longer tests did not worsen applicant reactions for either personality or cognitive tests, and in fact individuals taking a longer cognitive assessment reported more favorable applicant reactions. Implications are discussed.

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Motivating Process Compliance Through Individual Electronic Monitoring: An Empirical Examination of Hand Hygiene in Healthcare

Bradley Staats et al.

Management Science, forthcoming

Abstract:
The design and use of standard processes are foundational recommendations in many operations practices. Yet, given the demonstrated performance benefits of standardized processes, it is surprising that they are often not followed consistently. One way to ensure greater compliance is by electronically monitoring the activities of individuals, although such aggressive monitoring poses the risk of inducing backlash. In the setting of hand hygiene in healthcare, a context where compliance with standard processes is frequently less than 50% and where this lack of compliance can result in negative consequences, we investigated the effectiveness of electronic monitoring. We did so using a unique, radio frequency identification (RFID)-based system deployed in 71 hospital units. We found that electronically monitoring individual compliance resulted in a large, positive increase in compliance. We also found that there was substantial variability in the effect across units and that units with higher levels of preactivation compliance experienced increased benefits from monitoring relative to units with lower levels of prepreactivation compliance. By observing compliance rates over three and a half years, we investigated the persistent effects of individual monitoring and found that compliance rates initially increased before they gradually declined. Additionally, in multiple units, individual monitoring was discontinued, allowing for an investigation of the impact of removing the intervention on compliance. Surprisingly, we found that, after removal, compliance rates declined to below prepreactivation levels. Our findings suggest that, although individual electronic monitoring can dramatically improve process compliance, it requires sustained managerial commitment.

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Motivating Effort In Contributing to Public Goods Inside Organizations: Field Experimental Evidence

Andrea Blasco et al.

NBER Working Paper, April 2016

Abstract:
We investigate the factors driving workers’ decisions to generate public goods inside an organization through a randomized solicitation of workplace improvement proposals in a medical center with 1200 employees. We find that pecuniary incentives, such as winning a prize, generate a threefold increase in participation compared to non-pecuniary incentives alone, such as prestige or recognition. Participation is also increased by a solicitation appealing to improving the workplace. However, emphasizing the patient mission of the organization led to countervailing effects on participation. Overall, these results are consistent with workers having multiple underlying motivations to contribute to public goods inside the organization consisting of a combination of pecuniary and altruistic incentives associated with the mission of the organization.


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