DP14554 No Line Left Behind: Assortative Matching Inside the Firm

Author(s): Achyuta Adhvaryu, Vittorio Bassi, Anant Nyshadham, Jorge Tamayo
Publication Date: April 2020
Keyword(s): assortative matching, Global Buyers, India, Management, productivity, Readymade Garments
JEL(s): J24, L14, L23, M5
Programme Areas: Labour Economics, Industrial Organization, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14554

How do firms pair workers with managers, and which constraints affect the allocation of labor within the firm? We characterize the sorting pattern of managers to workers in a large readymade garment manufacturer in India, and then explore potential drivers of the observed allocation. Workers in this firm are organized into production lines, each supervised by a manager. We exploit the high degree of worker mobility across lines, together with worker-level productivity data, to estimate the sorting of workers to managers. We find negative assortative matching (NAM) -- that is, better managers tend to match with worse workers, and vice versa. This stands in contrast to our estimates of the production technology, which reveal that if the firm were to positively sort, productivity would increase by 1 to 4 percent across the six factories in our data. Coupling these findings with a survey of managers and with data on multinational brands and the orders they place, we document that NAM arises, at least in part, because the value of buyer relationships imposes minimum productivity constraints on each production line. Our results emphasize that suppliers to the global market, when they are beholden to a small set of powerful buyers, may be driven to allocate managerial skill to service these relationships, even at the expense of productivity.