Management Practices and Productivity in Germany

Abstract

Based on a novel dataset, the ‘German Management and Organizational Practices’ (GMOP) Survey, we calculate establishment‐specific management scores following Bloom and van Reenen as indicators of management quality. We find substantial heterogeneity in management practices across establishments in Germany, with small establishments having lower scores than large establishments on average. We show a robust positive and economically important association between the management score and establishment level productivity in Germany. This association increases with establishment size. Comparison to a similar survey in the United States indicates that the average management score is lower in Germany than in the United States. Overall, our results point toward lower management quality being at least in part to blame for the differences in aggregate productivity between Germany and the United States.

Management practices and SME performance

“…Finally, the presence of recognized trade unions is positively associated with the number of management practices, but the association is only statistically significant in the full sample of all firms. The positive and statistically significant association for all firms stands against the non‐significant association between works councils and management practices in Germany (see Broszeit et al ., ) but British unions and German works councils are rather different in form and function; our result is in line with recent research in Britain which shows that unionized firms are more extensive users of high‐involvement management practices (Askenazy and Forth, ).…”

“…() and Broszeit et al . (), we find that foreign‐owned firms and those who operate in international product markets are more extensive users of formal management practices. We also find that greater levels of product market competition are positively associated with the use of formal management practices: a relationship which Bloom et al .…”

“…(2016a, ) and Broszeit et al . () each show positive and statistically significant associations between the greater use of formal management practices and productivity. We also find some evidence of this in our sample of SMEs.…”

“…Owner-managed firms exhibited particularly low use of formal management practices in Bloom et al's original work (Bloom et al, 2012), leading them to suggest that family ownership may depress managerial quality by reducing the pool of available managerial recruits. However, an indicator of family ownership is non-significant in Broszeit's multivariate analysis for Germany (Broszeit et al, 2016), and so the evidence is mixed on the importance of owner-management. The evidence is more consistent on the importance of internationalization and competition, however.…”

“…Efforts to break down the management index in such studies have been somewhat limited, though Brynjolfsson and McElheran () find that there are specific returns from the intensive collection and use of performance‐related data, while Broszeit et al . () find returns from the more intensive use of monitoring and incentives, but not from the more intensive use of performance targets.…”