The Value of Delegation in Hiring

Abstract

Delegation in hiring (DIH) is becoming a mainstream management practice among business chains worldwide, yet theoretical and empirical evidence of its effects remains scarce. DIH refers to the use of local business unit managers to do their own recruiting, rather than relying on the headquarters human resource (HR) department. To estimate the impacts of DIH on employee recruitment, productivity, and firm performance, we partnered with a large Chinese firm with 111 retail stores on a 12-month field experiment. Results show that DIH increases both the mean and the variance of individual productivity, with an overall positive impact on store-level productivity by 7.1%. The growth in store-level performance is driven by both direct effects of recruiting higher-performing workers and indirect effects of positive spillovers from new to existing employees. Consistent with our theory, DIH achieves better outcomes in stores that have better incentives, larger shares of repeated customers, and that are less busy. To test the validity of our experiment, we find similar results from observational data on this firm and a second large multinational firm in the spa industry. Overall, this study illustrates the value of information held by local managers in hiring productive employees.