Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation

Abstract

Teams have become a mainstay for the organization of work. Economic models of teams focus on productivity declines due to free-riding and on mechanisms to avoid it. Unfortunately, few empirical studies have systematically examined the impact of teams on output. Furthermore, the literature does not consider the potential effect of worker heterogeneity on productivity or worker selection for, and participation in, teams. In this paper we identify the productivity and participation implications of five potential behavioral responses (free-riding being one) to the adoption of team incentives with heterogeneous workers. Using a novel data set from the garment industry, we empirically examine worker productivity and participation as a garment plant shifted from an individual piece rate to a group piece rate production system over three years. The adoption of teams at the plant improved worker productivity by 14% on average, even after controlling for systematic selection of high-ability workers onto teams. Productivity improvement was greatest for the earliest teams and diminished as more workers in the firm engaged in team production. Also, high-ability workers not only tended to join teams first, despite a loss in earnings in many cases, but also were no more likely to subsequently leave the firm after joining a team than low-ability workers, suggesting strong non-pecuniary benefits associated with teamwork. Finally, more heterogeneous teams were more productive, holding average ability constant, and high-ability workers appeared to have a stronger influence on team productivity than did low-ability workers. The last finding is consistent with explanations emphasizing mutual team learning and intra-team bargaining.