Competition and Social Identity in the Workplace: Evidence from a Chinese Textile Firm

Social identity theory suggests that individuals derive part of their self-concept from their perceived membership in a social group and behave differently towards in-group versus out-group members. But despite the importance of social identity in organizational contexts, the existing empirical evidence in managerial economics has mostly come from lab experiments, and there exist few quantitative studies on the impact of social identity on worker behaviors in real workplaces. This paper provides novel evidence of the impact of social identity on workers' competitive behaviors in a Chinese textile firm that uses relative performance incentives. The firm provides an unusual empirical setting in which there is a historical and institutional division of all weavers into two distinct groups with different social identities: urban resident and rural migrant workers. Our findings show that the weavers do not compete against coworkers who share the same social identity even though there is a tournament incentive to outperform their coworkers in general. Instead, they only compete against coworkers who do not share the same social identity. Managers who design incentive schemes without understanding the dynamics of social incentives in the workplace may fail to achieve the intended effects on productivity. Key concepts include:

• Social identity plays an important role in mitigating or amplifying the pecuniary incentives created by relative performance schemes.
• In an environment with tournament incentives, the competitive effect of tournaments may be mitigated among workers who share the same social identity, but amplified across different social groups.
• By taking advantage of the presence of social identities in the workplace, management can design and implement tournament that maximizes the beneficial effect of tournament and minimizes its "dark side."