Are some management practices akin to a technology, or do they simply reflect contingent management styles?
Using data collected on main management practices, Professor Van Reenen discusses their relationship to productivity at 8,000 companies in 20 countries in America, Europe and Asia. The United States earns the highest average score in management, and approximately one third of this is due to stronger reallocation effects, since the system rewards the best managed companies with the largest market share. Management explains almost half of the gap between the United States and other countries in total factor productivity (TFP).
Van Reenen proposes a simple model of management as a technology that predicts a positive impact on firm performance, as well as a positive relationship between product market competition and average management quality, and concludes that the positive covariance between management and firm size (Olley-Pakes reallocation term) should be higher in the presence of lower distortions (for example, it is stronger in the United States than in southern Europe and areas with higher trade costs).
His work has found strong empirical support for all three predictions. Reallocation is greater when trade barriers are lower, when labor regulations are weak, and during the Great Recession of 2008-2009.
President of the European Economic Association