Title : Labor Adjustment Costs and Competitive Advantage : The Role of Health Insurance Benefits

What drives organizational performance is one of the most enduring and important questions for organizational scholars (Taylor 1911; Weber 1978; Scott and Davis 2007). Extant research has often underlined the role of organizational factors, including how organizational structures (Thompson, 1967), routines (Nelson and Winter, 1982), capabilities (Teece, Pisano, and Shuen, 1997), and resources (Barney, 1991) shape the performance of firms. These perspectives highlight that organizational, rather than individual, attributes matter considerably for firm performance. But recently, Mollick (2012) has shown that, even relative to organizational factors, individuals do matter a great deal for firm performance. This is an important finding, but the issues of how and under what conditions individuals matter remains an open question. This study addresses this question by making a distinction between an individual’s direct contributions to organizational performance and their indirect contributions through enhancing coworkers’ performance. To do so, I consider how temporary absences of highly productive individuals affect both the organizational performance and the individual performance of their coworkers. I propose that the temporary absence of these individuals negatively affects organizational performance due to both individual sorting—differences in individuals’ own performance—and peer effects—differences in the influence individuals have on the performance of peers. While both individual sorting and peer effects influence organizational performance, only the latter affects the individual performance of coworkers. I test these predictions using data on physicians treating patients with ischemic heart disease in several hospitals in Brazil. Ischemic heart disease, of which heart attack is the primary manifestation, is the leading cause of death worldwide. The data include over 16,000 physicians treating more than 1.4 million patients across 237 hospitals between 2008 and 2017. I define highly productive physicians based on the number of patients treated within hospitals, identifying 279 high-volume physicians that together treated close to 400,000 patients over the period above. The empirical analysis explores how temporary absences of these high-volume physicians affect the performance of their organizations and their peers. The primary performance outcome in this study follows a well-established performance outcome for hospitals and physicians: whether a patient lives or dies. The empirical strategy uses a difference-in-differences framework to examine the effect of temporary absences of high-volume physicians on both within-hospital and within-physician patient mortality. The identifying assumption behind this approach is that the only reason for changing outcomes in hospitals that experience the absence of a high-volume physician, relative to other similar hospitals, is the absence itself. Although I am able to rule out concerns about permanent differences between hospitals through the use of hospital fixed effects, there are two potential concerns with such approach. The first is that there are underlying trends in hospital outcomes that are concurrent (or even determining) the absence of a physician. For example, deteriorating conditions in a hospital may determine both physician absence and worsening outcomes. I addressed this concern by investigating the dynamics in outcomes around the absences and found no evidence of differential trends both before and after the absences. The second concern is that the absence of a high-volume physician may change the composition of patients in the hospital, leading to changes in outcomes through composition bias. For example, if the absence of a highvolume physician leads to admissions of sicker patients, then the absence would be associated with worse