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How Much Does a Good Boss Really Matter? (Ep. 107)


(Photo: Ben Dalton, Creative Commons )

Our latest Freakonomics Radio on Marketplace podcast is called “How Much Does a Good Boss Really Matter?”  (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript here.)
It’s based on a recent working paper called “The Value of Bosses” (abstractPDF) by Edward LazearKathryn Shaw, and Christopher Stanton. In the podcast, you’ll hear Lazear describe the basic problem:

LAZEAR: Suppose you look at a firm and you see that the firm is highly productive. Well, it may be highly productive because it has productive workers, because it has productive technology, or because it has good supervisors that are enhancing the productivity of the workers, and it’s not so easy to tease out one effect from another.

So how can you measure the impact of the bosses? Data, people, data. And Shaw came up with a huge data set from a company that included roughly 23,000 employees and 2,000 bosses. From their paper:

Three findings stand out. First, the choice of boss matters. There is substantial variation in boss quality as measured by the effect on worker productivity. Replacing a boss who is in the lower 10% of boss quality with one who is in the upper 10% of boss quality increases a team’s total output by about the same amount as would adding one worker to a nine member team. Using a normalization, this implies that the average boss is about 1.75 times as productive as the average worker. Second, boss’s primary activity is teaching skills that persist. Third, efficient assignment allocates the better bosses to the better workers because good bosses increase the productivity of high quality workers by more than that of low quality workers.

The podcast also includes a conversation we had a while back with a very different sort of boss: Joe Maddon, manager of the Tampa Bay Rays. He showed up briefly in our “How Much Does the President Really Matter?” podcast but here we have time for a more substantial conversation.
Finally, here’s an interesting related e-mail from a reader named Max Lotstein:

A friend of mine works for a company with an interesting way of rewarding its employees. Immediately after he was hired after graduating in May, my friend, Jon, was told, “Get ready for an awesome Christmas party!” And from what he told me, the party didn’t disappoint: it was phenomenal. After he related this story to me, I speculated that the over-the-top party, and its emphasis, were intentional, and part of a managerial strategy. Though the company could have redistributed the money for the lavish party (employees were flown in from all over the world, at great cost, among other things) and padded everyone’s salaries, that type of reward often goes unnoticed. Perhaps it’s like what Al Gore said in An Inconvenient Truth — that we are all frogs in slowly boiling pots of water, unable to recognize incremental changes [Ed.: see here]– and that by spending this money all at once, it creates a salient thing to recall whenever one considers the question “Does my company value me?”