Morten Bennedsen (University of Copenhagen / INSEAD); Francisco Perez-Gonzales (ITAM Mexico); Margarita Tsoutsoura (Washington U); Daniel Wolfenzon (Columbia Business School)
Abstract
We document the importance of leadership on employee effort in the public sector in Denmark. Using hospitalization of leaders, we showthe causal impact of leaders on employee effort measured through employee absenteeism in the entire public sector and in the three main sub sectors of health, education and public administration. We identify four aspects of leadership (personal traits; shocks and use of prescription medicine; incentives structures; and, unit organization) and document the correlation with employee absenteeism. We then decompose absenteeism into selection (employee) effects and incentives (unit) effects and we find that the incentives effects explains between 50 pct and 60 pct of the variation in effort. We show important variation in the correlation between the four leadership characteristics and incentives and selection effect across the three main sub sectors. Our result are consistent with the notion that leaders personal characteristics and their actions are crucial in promoting employee effort in the public sector.