Opportunity Counts: Teams and the Effectiveness of Production Incentives

Abstract

Using unique panel data on production lines in U.S. minimills, we analyze the adoption of problem‐solving teams and group incentive pay and their effects on productivity. Almost every line ultimately adopts group incentives. However, problem‐solving teams are found almost exclusively in lines with more complex production processes. Consistent with these patterns, fixed‐effects models reveal increased productivity under group incentives in all lines, while teams raise productivity in lines with more complex production processes. This evidence indicates that teams give workers a valuable opportunity to solve problems in more complex production processes, while standard operating procedures appear to suffice elsewhere.