Absenteeism, Productivity, and Relational Contracts Inside the Firm

20.500.12592/nsr87t

Absenteeism, Productivity, and Relational Contracts Inside the Firm

16 Dec 2021

We study relational contracts among managers using unique data that tracks transfers of workers across teams in Indian ready-made garment factories. We focus on how relational contracts help managers cope with worker absenteeism shocks, which are frequent, often large, weakly correlated across teams, and which substantially reduce team productivity. Together these facts imply gains from sharing workers. We show that managers respond to shocks by lending and borrowing workers in a manner consistent with relational contracting, but many potentially beneficial transfers are unrealized. This is because managers’ primary relationships are with a very small subset of potential partners. A borrowing event study around main trading partners’ separations from the firm reinforces the importance of relationships. We show robustness to excluding worker moves least likely to reflect relational borrowing responses to idiosyncratic absenteeism shocks. Counterfactual simulations reveal large gains to reducing costs associated with forming and maintaining additional relationships among managers.
industrial organization microeconomics other development economics firm behavior economics of information labor studies market structure and firm performance productivity, innovation, and entrepreneurship households and firms accounting, marketing, and personnel

Authors

Achyuta Adhvaryu, Jean-François Gauthier, Anant Nyshadham, Jorge A. Tamayo

Acknowledgements & Disclosure
Thanks to Abhijit Banerjee, Vittorio Bassi, Lauren Bergquist, Hoyt Bleakley, Julia Cajal Grossi, Lorenzo Casaburi, Sylvain Chassang, Rachel Glennerster, Pinar Keskin, Francine Lafontaine, Rocco Macchiavello, Bentley Macleod, Jim Malcomson, Ameet Morjaria, Kaivan Munshi, Dina Pomeranz, Debraj Ray, Ben Roth, Raffaella Sadun, Heather Schofield, Jagadeesh Sivadasan, Eric Verhoogen, Chris Woodruff, Dean Yang, and seminar participants at EPED Montreal, Minnesota, Montana, UVA, Michigan, Hawaii, Indian Statistical Institute, Harvard, Cambridge, Oxford, Trinity College Dublin, NBER, Boston College, U. of Houston, Graduate Institute Geneva, Zurich, and Wellesley for helpful comments. Thanks to Smit Gade and Varun Jagannath for help in conducting manager interviews. Thanks to Esther Lee for helping us compile festival dates. Thanks also to Cristian Chica for excellent research assistance. Adhvaryu and Nyshadham are cofounders, on the board of directors, and serve as Chief Development Officer and Chief Strategy Officer, respectively, of Good Business Lab, a non profit organization based in India which conducted the survey data collection for the study. Neither has any financial interest in Good Business Lab’s activities. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
DOI
https://doi.org/10.3386/w29581
Published in
United States of America

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