Making the Invisible Hand Visible: Managers and Worker Allocation

This paper asks why managers matter for firm performance, and specifically whether managers improve productivity by matching workers to better-suited jobs inside firms rather than through supervision, motivation, or selection out of the firm. The setting is the internal labor market of a large private consumer goods multinational enterprise (MNE) operating in more than 100 countries, with annual turnover exceeding EUR 50 billion. The data cover the universe of white-collar workers and managers at the firm — 200,000 workers and 30,000 managers observed monthly over 11 years (January 2011 to December 2021) — linked to payroll, performance ratings, organizational chart, digital platform activity, employee surveys, and an independent sales productivity series for field sales workers in 15 countries.

The paper confronts two identification challenges. First, the author constructs a measure of manager quality — “high flyers” — defined as managers who were promoted to the first managerial work level (WL2) by age 30. This threshold yields 26.2% of managers classified as high flyers. The measure is defined entirely ex ante, before the manager ever supervises the worker under study, which addresses reverse causality. It is validated against ex post performance metrics including future salary growth, probability of promotion to WL3, performance ratings, and anonymous subordinate feedback. Second, to identify causal effects of manager quality on workers, the author exploits the firm’s long-standing policy of rotating WL2 managers laterally across teams as part of their career development, a practice implemented for several decades. Using an event-study design centered on the worker’s first manager transition, the author compares workers who transition from a low-flyer to a high-flyer manager (LtoH) against workers who transition from one low-flyer to a different low-flyer (LtoL), netting out the effect of the transition itself. Pre-event parallel trends are confirmed empirically.

The main findings are as follows. Gaining a high-flyer manager causes substantial reallocation of workers within the firm through lateral job transfers: seven years after the manager transition event, cumulative lateral moves are 40% higher for workers who gained a high-flyer manager relative to those who gained another low-flyer. These lateral moves are not confined to a single organizational margin — transfers rise within-team, across teams in the same function, and across functions — and they involve meaningfully larger shifts in task content, as measured by angular separation across O*NET cognitive, routine, and social task intensity dimensions, with cumulative task distance becoming statistically distinguishable from zero approximately seven quarters post-transition. These gains in lateral mobility translate into persistent wage growth: seven years after the manager transition, workers supervised by a high-flyer earn salaries 13% higher than the comparison group, with divergence beginning only after the transition date. Using independent sales bonus data, three years after gaining a high-flyer manager workers’ sales productivity increases by 0.347 standard deviations, ruling out the interpretation that wage gains merely reflect manager favoritism rather than genuine productivity improvement. Establishment-level data further show that sites with a higher share of workers under high-flyer managers display higher output per worker and lower operational costs per unit.

Effects are asymmetric: gaining a good manager has large positive effects, but losing one (comparing HtoL with HtoH transitions) produces no corresponding negative effects, implying that a single exposure to a high-flyer manager generates durable benefits that survive a subsequent downgrade in manager quality. A mediation analysis finds that 64% of the salary gain is explained by lateral job changes, though the author notes this understates the full allocation channel because it excludes vertical transfers and the gains from remaining well-matched in the current role. These findings hold under multiple robustness checks including restricting to new hires, using the Sun and Abraham (2021) interaction-weighted estimator, varying the age threshold for high-flyer classification, using a tenure-based alternative, and placebo tests with randomly assigned manager types.

The scope conditions are specific to white-collar workers at a large, organizationally homogeneous consumer goods multinational. All workers hold college degrees, mean firm tenure is 8.5 years, team sizes average five workers, and the firm has the same organizational structure across all countries, functions, and years.

Q: How does the paper define “high flyer” managers and what share of managers receive this classification? A: High flyers are managers who achieved the first managerial work level (WL2) by age 30, a threshold derived from continuous age estimates constructed from 10-year age bands in the personnel records. This definition yields 26.2% of managers classified as high flyers. The measure is time-invariant and defined ex ante relative to any interaction with the workers whose outcomes are studied.

Q: What validates the high-flyer measure as capturing genuine managerial ability rather than noise? A: The high-flyer classification is significantly positively correlated with multiple ex post performance metrics recorded after the manager’s own promotion: future salary growth, probability of subsequent promotion to WL3 (director level), annual performance ratings, and anonymous upward feedback scores from subordinates on leadership. High flyers are also 14.5 percentage points less likely to be mid-career recruits, suggesting they are internally developed talent rather than external hires.

Q: What is the source of identifying variation and how does the event-study design address endogeneity? A: The firm has operated a decades-long policy of rotating WL2 managers laterally across teams to broaden their experience and to screen candidates for promotion to WL3. These rotations are asserted by firm executives and HR representatives to be orthogonal to worker and team characteristics. The author verifies this empirically by showing that a wide range of team characteristics measured over the two years before a transition — including team performance, inequality, transfer rates, and team diversity — cannot predict the type of incoming manager. The event-study design compares workers who receive a high-flyer replacement (LtoH) against workers who receive another low-flyer replacement (LtoL), netting out any generic effect of a managerial change, and confirms parallel pre-trends.

Q: What is the effect of gaining a high-flyer manager on lateral job mobility? A: Seven years after the manager transition, workers assigned to a high-flyer manager exhibit lateral moves that are 40% higher relative to workers assigned to another low-flyer. These lateral moves occur across all organizational margins: within the same team, across teams within the same function (the largest contributor), and across functions. Beyond frequency, lateral moves under high-flyer managers also involve larger task-content shifts, with cumulative task distance (measured using O*NET cognitive, routine, and social task dimensions via angular separation) becoming statistically distinguishable from zero approximately seven quarters after the transition.

Q: What is the wage effect of gaining a high-flyer manager and when does it materialize? A: Workers who transition from a low-flyer to a high-flyer manager earn a salary 13% higher than workers who transition to another low-flyer, measured seven years after the transition event. The divergence begins only after the transition date, consistent with the pre-event parallel trends assumption, and accumulates gradually rather than appearing as an immediate jump.

Q: Does the wage gain reflect genuine productivity improvement or simply managerial favoritism in pay decisions? A: The author uses an independent sales bonus series — based on monthly targets set by supply chain demand planning teams, not by managers — for 5,604 field sales workers in 15 countries from 2018 to 2021. Three years after gaining a high-flyer manager, workers’ sales productivity increases by 0.347 standard deviations. This confirms that pay gains correspond to actual productivity improvement rather than inflated ratings for unchanged performance.

Q: How much of the wage gain is attributable to the lateral reallocation channel specifically? A: A mediation analysis attributes 64% of the 13% salary gain to lateral job changes. The author cautions that this is a lower bound because the mediation excludes vertical transfers (which mechanically raise salary) and does not capture gains for workers who remain in their current job because it represents a good match rather than requiring reallocation.

Q: Are the effects symmetric — does losing a high-flyer manager reverse the gains? A: No. Comparing workers who transition from a high-flyer to a low-flyer manager (HtoL) against workers who transition from a high-flyer to another high-flyer (HtoH) reveals no corresponding negative effects. The gains from a single prior exposure to a high-flyer manager are persistent and are not undone by a subsequent low-quality manager. The author interprets this as evidence that a good match, once created, endures independently of the manager who created it.

Q: Does gaining a high-flyer manager raise the rate of worker exit from the firm? A: No. There is no statistically detectable effect on either voluntary exits (quits) or involuntary exits (layoffs), with null results that are not masked by heterogeneity across high- and low-performing workers. This rules out the interpretation that high-flyer managers improve measured outcomes of retained workers by selecting out underperformers.

Q: Do workers move into roles connected to their high-flyer manager’s prior network or follow their manager when the manager moves? A: No. There is no evidence that workers move into roles connected to the high-flyer manager’s prior colleagues; if anything, subordinates of high-flyer managers are less likely to make such moves. Workers also do not follow their high-flyer managers when those managers subsequently rotate to a different team. These findings rule out favoritism, social network access, and information-advantage explanations as primary drivers.

Q: How does the paper rule out on-the-job teaching (human capital transmission) as the primary mechanism? A: If high-flyer managers improved worker outcomes primarily by teaching workers to be more productive in their current job, the prediction would be reduced lateral mobility (workers become too productive to leave their current role). The observed pattern — substantially higher rates of lateral reallocation under high-flyer managers — is the opposite of this prediction, making teaching as the dominant channel unlikely.

Q: What does the manager behavior evidence show about how high flyers spend their time? A: Time-use data from a random sample of approximately 600 WL2 managers in 2019 show that high-flyer managers spend 19% more time in one-on-one meetings with subordinates and engage more in communication and multitasking activities relative to low-flyer managers. Their skill profiles also differ: high flyers are more likely to have strengths in strategy and talent management rather than project management, consistent with a more coordination-intensive and people-development-oriented style.

Q: What heterogeneity is there in who benefits from high-flyer managers? A: Effects are larger when managers and workers are in the same physical office (proximity facilitates talent assessment), when the organizational unit has a more diverse set of job roles (more matching opportunities), and for younger workers who are still discovering their comparative advantages. Critically, benefits are not concentrated among high-baseline performers: workers with low initial pay growth experience gains comparable to those of high performers, suggesting high-flyer managers uncover and deploy hidden talent broadly rather than accelerating only already-visible stars.

Q: Does high-flyer management aggregate to establishment-level productivity? A: Yes. Establishments where a higher share of workers are supervised by high-flyer managers show higher output per worker (tons per FTE) and lower operational costs per unit of output (operational costs per ton), measured using establishment-year data across approximately 150 sites globally over 2019-2021. This is consistent with the individual-level allocation mechanism producing aggregate productivity gains.

Q: What are the organizational design implications of the asymmetric effects? A: Because the gains from a single exposure to a high-flyer manager persist even after a subsequent manager downgrade, firms do not need each worker to be continuously supervised by a high-flyer. It is sufficient to rotate high-flyer managers across teams so that each worker receives at least one exposure. This makes the allocation mechanism resource-neutral relative to hiring, firing, or formal training programs.

High flyer (paper’s definition): A manager who achieved the first managerial work level (WL2) at the firm by age 30 — a time-invariant, ex ante classification representing the firm’s revealed-preference assessment of leadership potential, validated against subsequent salary growth, promotion probability, performance ratings, and subordinate feedback. Constitutes 26.2% of managers in the sample.

Internal labor market (paper’s usage): The system within the firm through which workers are allocated to jobs via lateral transfers and vertical promotions, mediated by managers rather than by external price mechanisms; the institutional context within which manager-worker matching produces wage growth and productivity gains.

Lateral transfer (paper’s usage): A horizontal reallocation of a worker to a different job title, team, subfunction, or function at the same work level, as distinct from a vertical promotion. Captured monthly in personnel records; operationalized as moves involving changes in task content measured by O*NET task distances.

Task distance (paper’s usage): The angular separation between origin and destination occupations across three O*NET task dimensions (cognitive, routine, and social intensity), ranging from zero (identical task profiles) to one (completely distinct profiles), used to characterize the substantive scope of lateral moves induced by high-flyer managers.

Manager rotation (paper’s usage): The firm’s longstanding policy of reassigning WL2 managers laterally across teams within a subfunction, designed to broaden managerial experience and screen for promotion to WL3; treated in the empirical strategy as generating plausibly exogenous variation in the manager type each worker encounters.

Allocation mechanism (paper’s usage): The process by which managers discover workers’ specific skills and match them to specialized jobs inside the firm, operating through lateral reallocation rather than through hiring, firing, or on-the-job training; identified in the paper as the primary channel through which high-flyer managers generate persistent wage and productivity gains.

Asymmetric persistence (paper’s usage): The empirical pattern in which the gains from gaining a high-flyer manager are large and durable, while losing a high-flyer manager (transitioning to a low-flyer) produces no corresponding negative effects on the outcomes of previously well-matched workers, implying that good matches, once formed, survive a change in manager quality.