Opportunity Counts: Teams and the Effectiveness of Production Incentives

Opportunity Counts: Teams and the Effectiveness of Production Incentives

By
Kathryn Shaw, Brent Boning, Casey Ichniowski
Journal of Labor Economics. October
2007, Vol. 25, Issue 4, Pages 613-650

Using unique panel data on production lines in U.S. minimills, we analyze the adoption of problem-solving teams and group incentive pay and their effects on productivity. Almost every line ultimately adopts group incentives. However, problem-solving teams are found almost exclusively in lines with more complex production processes. Consistent with these patterns, fixed-effects models reveal increased productivity under group incentives in all lines, while teams raise productivity in lines with more complex production processes. This evidence indicates that teams give workers a valuable opportunity to solve problems in more complex production processes, while standard operating procedures appear to suffice elsewhere.