The value of bosses

A firm could be productive because its workers are highly productive, or it has a productive technology, or maybe because it has good bosses who are capable of enhancing the productivity of the workers. But how much could good bosses matter, really? It's hard to tell, since it's not easy to tease out one effect from another. But it's not impossible to tell either, as long as you have exact the right (and often large) data set to begin with. A recent study just did this, and they find out that good bosses could lead to about 10% increase in productivity for a given worker.

Here is the abstract:

Do supervisors enhance productivity? Arguably, the most important relationship in the firm is between worker and supervisor. The supervisor may hire, fire, assign work, instruct, motivate and reward workers. Models of incentives and productivity build at least some subset of these functions in explicitly, but because of lack of data, little work exists that demonstrates the importance of bosses and the channels through which their productivity enhancing effects operate. As more data become available, it is possible to examine the effects of people and practices on productivity. Using a company-based data set on the productivity of technology-based services workers, supervisor effects are estimated and found to be large. Three findings stand out. First, the choice of boss matters. There is substantial variation in boss quality as measured by the effect on worker productivity. Replacing a boss who is in the lower 10% of boss quality with one who is in the upper 10% of boss quality increases a team’s total output by about the same amount as would adding one worker to a nine member team. Using a normalization, this implies that the average boss is about 1.75 times as productive as the average worker. Second, boss’s primary activity is teaching skills that persist. Third, efficient assignment allocates the better bosses to the better workers because good bosses increase the productivity of high quality workers by more than that of low quality workers.

Source: Freakonomics Podcast.