Meritocracy and Productivity

A new paper by Bandiera et al. focuses on how matching worker skills to job characteristics affects productivity. They use detailed data for 120,000 workers across 28 countries in an attempt to identify the productivity effects of i) worker skill endowments, ii) technology, and iii) job markets frictions. They formalize meritocracy as as the degree to which worker skills match with the skill requirements of jobs. Miss-allocation, due to, say, inflexible labor laws or nepotism, would imply a reduced the role for meritocracy.

Not surprisingly, they find that most of the difference in income between developed and developing countries is from differences in skills and technology.  However:

... a large share (36 percent) of the gains from adopting frontier endowments and technology are realized through enhanced sorting. Improvements in worker-job matching thus constitute an important amplification channel for economic development ...

Without the ability to hire he right person, technology is less productive. Without the likelihood of using advanced skills on the job, workers forgo acquiring these skills. More generally, meritocracy improves incomes because it increases the return to investing in the technology and skills. This is further documentation of the importance of getting the incentives right.