Oriana Bandiera - Inequality, productivity and the organisation of labor, GFP Conference, Venice

Inequality, productivity and the organisation of labor Oriana Bandiera The London School of Economics and Political Science

2021 Annual Conference of the Global Forum on Productivity

Two ways of thinking about productivity

Symptoms

Causes

Remedies

References

There are two ways of thinking about productivity

1. making workers/firms more productive, taking as given the organisation of labor 2.improving the organisation of labor we mostly think of (1) makes sense only if (2) is optimal -is it?

Oriana Bandiera

Global Forum: Two ways of thinking about productivity

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Two ways of thinking about productivity

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References

The organisation of labor how society allocates people with different talents to: unpaid work (home) vs. paid work self-employed vs. firm managers vs. workers

do we get this right?

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Global Forum: Two ways of thinking about productivity

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Two ways of thinking about productivity

Symptoms

Causes

Remedies

References

This talk

misallocation symptoms misallocation causes: gender and wealth inequality misallocation and the pandemic: crisis or opportunity?

Oriana Bandiera

Global Forum: Two ways of thinking about productivity

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Two ways of thinking about productivity

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References

1.Managers vs workers

managers have a much larger impact on economic activity –> gains from swapping until all managers are more talented than all workers test with OECD PIAAC data on numeracy skills

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Global Forum: Symptoms

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Two ways of thinking about productivity

Symptoms

Causes

Remedies

References

Validation

Firms are better managed where managers are more talented Oriana Bandiera

Global Forum: Symptoms

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Two ways of thinking about productivity

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References

But often the most talented are not managers country 1

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Global Forum: Symptoms

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Two ways of thinking about productivity

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References

very often

country 2

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Global Forum: Symptoms

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Two ways of thinking about productivity

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Remedies

References

nearly always

country 3

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Global Forum: Symptoms

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Two ways of thinking about productivity

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References

Richer countries reward talent more

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Global Forum: Symptoms

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Two ways of thinking about productivity

Symptoms

Causes

Remedies

References

Richer countries allocate talent better

A ratio>1 means that the top 25% of BC is more talented than the bottom 25% of managers Oriana Bandiera

Global Forum: Symptoms

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Two ways of thinking about productivity

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References

2. The size of firms

over the process of development, self employment disappears as firms and salaried jobs increase sharply (source: JWD)

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Global Forum: Symptoms

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Two ways of thinking about productivity

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References

As firms grow, wages rise

the same worker earns 1.6X more in a large (250+) vs. small (10-49) firm (source: Moser 21 on 26 EU Countries) Oriana Bandiera

Global Forum: Symptoms

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Two ways of thinking about productivity

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References

The FSWP is larger in lower income countries

If large firms are more productive, why don’t small firms grow? (source: Moser 21) Oriana Bandiera

Global Forum: Symptoms

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Two ways of thinking about productivity

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Taking stock

(dis)organisation of labor creates misallocation of talent that hampers productivity in line with existing evidence on the misallocation of capital (Hsieh and Klenow, 2009; Bau and Matray, 2020) improving the allocation will be more powerful than trying to improve the productivity of misallocated workers

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Global Forum: Symptoms

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Two ways of thinking about productivity

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Causes

wealth inequality –> ”inherited” jobs –> restricted pool differential barriers on traits orthogonal to productivity –> women, ethnic minorities, cannot get the jobs that their talent deserves –> replaced by less talented groups

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Global Forum: Causes

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Two ways of thinking about productivity

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References

Restricting the pool: 1. Managers

When managers are mostly selected from the owning family talent is lower Oriana Bandiera

Global Forum: Causes

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Two ways of thinking about productivity

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Restricting the pool: 2. Inventors

Invention is the engine of growth.. we use 1% of it (Bell et al., 2019).

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Global Forum: Causes

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Two ways of thinking about productivity

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Restricting the pool: 3. Women

women LFP is much lower than men’s nearly everywhere Hsieh et al. (2019) estimate that between 20-40% of growth in output per person btw 1960-00 was due to improved allocation in Ashraf et al. (2021) we use HR data from a large MNE to compute the effect of misallocation on productivity –> average gain is 33%

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Global Forum: Causes

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Every crisis, an opportunity?

The pandemic is worsening the allocation of talent both current and future by restricting opportunities Two channels: 1 2

Oriana Bandiera

women’s labor force participation education

Global Forum: Remedies

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Two ways of thinking about productivity

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The (not so) great equaliser

Children in countries with lower PISA scores lost more school days to COVID (Schleicher 21) Oriana Bandiera

Global Forum: Remedies

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Two ways of thinking about productivity

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The (not so) great equaliser

Children in poorer families lost more learning opportunities to COVID (Chetty et al., 2020) Oriana Bandiera

Global Forum: Remedies

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Two ways of thinking about productivity

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Remedies

inequalities generate misallocation of talent misallocation lowers productivity and fosters more inequality policies that level the playing field can break this vicious cycle, and will be needed to recover from the pandemic

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Global Forum: Remedies

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Two ways of thinking about productivity

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Ashraf, Nava, Oriana Bandiera, Virginia Minni, and Victor Quintas-Martínez. 2021. “The Misallocation of Women’s Talent Across Countries: Evidence from Personnel Data.” Working Paper.

Bau, Natalie, and Adrien Matray. 2020. “Misallocation and capital market integration: Evidence from India.” National Bureau of Economic Research.

Bell, Alex, Raj Chetty, Xavier Jaravel, Neviana Petkova, and John Van Reenen. 2019. “Who becomes an inventor in America? The importance of exposure to innovation.” The Quarterly Journal of Economics, 134(2): 647–713.

Chetty, Raj, John N Friedman, Nathaniel Hendren, Michael Stepner, et al. 2020. “The economic impacts of COVID-19: Evidence from a new public database built using private sector data.” National Bureau of Economic Research.

Hsieh, Chang-Tai, and Peter J Klenow. 2009. “Misallocation and manufacturing TFP in China and India.” The Quarterly journal of economics, 124(4): 1403–1448.

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Global Forum: References

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Two ways of thinking about productivity

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Hsieh, Chang-Tai, Erik Hurst, Charles I Jones, and Peter J Klenow.

2019. “The allocation of talent and us economic growth.”

Econometrica, 87(5): 1439–1474.

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Global Forum: Remedies

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