Peer Effects, Social Networks, and Intergroup Competition in the Workplace

Using weekly data for defect rates (proportion of defective output) for all weavers in a Chinese textile firm during a 12 months (April 2003 - March 2004) period, we provide some of the first rigorous evidence on the presence and nature of peer effects in the manufacturing workplace. First, a worker is found to put in more effort and improve her performance when she is working with more able teammates. Second, by exploiting the well-documented fact that an exogenouslyformed strong divide between urban resident workers and rural migrant workers exists in firms in Chinese cities, we provide novel evidence on the interplay between social networks (urban resident group and rural migrant group) and peer effects. Specifically, we find that a worker puts in more effort when she is working with more able outgroup teammates but not when working with more able ingroup teammates, pointing to intergroup competition as a powerful source of the peer effects. Such peer effects across the social network, combined with the presence of incentive to outperform teammates at this firm, are largely consistent with recent experimental evidence on the important role that group identities play in facilitating altruistic behaviors.