• Authors: Simon Jäger (Princeton University); Gert Bijnens (National Bank of Belgium); Benjamin Schoefer (University of California Berkeley)
• Title: What Does Consulting Do?
• Journal: National Bureau of Economic Research

Consulting firms promise to help businesses grow, become more efficient, and solve tough problems. But does hiring consultants actually make a difference?

This study is the first systematic and comprehensive look at consulting across an entire economy—Belgium’s—using detailed tax and business records. The researchers wanted to understand which companies hire consultants, how much they spend, and what happens afterward.

“What does consulting do? Does it add value for clients? Does it cut labor costs? There are a lot of strongly held views, yet hardly any systematic data to speak to these questions,” said Simon Jäger, associate professor of economics and public affairs at the Princeton School of Public and International Affairs.

Jäger and his co-authors found that consulting is mostly used by large companies, especially those with high productivity. But both very successful and struggling firms tend to hire consultants. Most consulting projects are short, lasting less than a year, and cost about 3% of a company’s payroll.

Using a method that compares companies before and after they hire consultants—and matches them with similar companies that didn’t—the researchers found:

• Productivity: Companies that hired consultants saw a 3.6% increase in labor productivity over five years.
• Wages: Average wages rose by 2.7%, suggesting that workers benefited from the productivity gains.
• Employment: There was a slight drop in employment, but revenue stayed stable or grew.
• Restructuring: Companies made internal changes, such as hiring more managers and reducing reliance on temp agencies.
• Equity: The share of income going to workers didn’t decrease, meaning gains weren’t taken away from employees.

These results suggest that consulting can help companies become more efficient without hurting workers. The authors point out that they did not study a randomized assignment of consultants to firms, so the estimated effects may partially reflect which firms choose to hire consultants.

The study challenges the idea that consulting is just a way for managers to cut costs or shift profits away from workers. Instead, it shows that consulting can lead to real improvements in how companies operate—and that these benefits can be shared with employees.

However, the effects were modest compared to similar studies in developing countries like India and Mexico. That might be because Belgian firms already have strong management practices, so there’s less room for dramatic improvement.

The researchers also found that smaller and less productive firms benefited the most, which could mean that consulting helps close gaps between companies.