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

Abstract

Almost all firms rely on supervisor discretion 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 with supervisors, we randomize whether supervisors face financial incentives based on the quality of their referrals. 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 potential of workers. Supervisors use private information beyond what the firm could infer from existing administrative data, workers’ self-assessments, or coworker referrals. However, discretion also generates costs for firms. Supervisor referrals are not perfectly aligned with the firm’s objectives, and supervisors show preferences consistent with gender bias and favoritism. Furthermore, discretion is disliked by workers and reduces the number of workers who apply for promotion. Despite the costs of discretion, supervisors select workers with significantly higher measured managerial ability relative to more objective selection methods.