Selection and Sorting when Supervisors have Discretion: Experimental Evidence from a Tanzanian Factory

Abstract

Almost all firms rely on supervisors to select and motivate workers. But what are the benefits and costs of doing so? In partnership with a large garment manufacturing firm in Tanzania, we implement a series of field experiments to examine supervisor discretion in the selection of workers for promotion to managerial positions. In a first field experiment, we randomize whether supervisors face financial incentives based on the quality of the workers they refer for promotion. In a complementary experiment with workers, we randomly vary whether supervisor referrals are emphasized in the selection process when workers make application decisions. Our results show that discretion crowds in supervisors’ private information about the managerial quality of workers. However, discretion also generates costs for firms. Supervisor referrals are not perfectly aligned with the firm’s objectives and discretion is disliked by workers and reduces the likelihood that workers apply for promotion. A counterfactual analysis reveals that, despite the costs of discretion, supervisors select workers with significantly higher measured managerial ability relative to more objective selection methods. Thus, while discretion reduces the number of workers who pursue promotion opportunities, because worker self-selection and work performance are orthogonal to managerial quality, on net discretion leads to the promotion of higher quality workers.