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Absenteeism, Productivity, and Relational Contracts Inside the Firm

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

No 29581, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D23 D86 L14 L23 M54 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-cta and nep-hrm
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