Do "High-Performance" Work Practices Improve Establishment-Level Outcomes?

Abstract

Interest in the potential effects of different systems for organizing work and managing employees on the performance of organizations has a long history in the social sciences. The interest in economics, arguably more recent, reflects a general concern about the sources of competitiveness in organizations. A number of methodological problems have confronted previous attempts to examine the relationship between work practices and the performance of firms. Among the most intractable has been a concern about establishing causation given heterogeneity biases in what have typically been cross-sectional data. The results from prior literature are suggestive of important productivity effects but remain inconclusive. To address the major methodological problems we use a national probability sample of establishments, measures of work practices and performance that are comparable across organizations, and most importantly a unique longitudinal design incorporating data from a period prior to the advent of high performance work practices. Our results suggest that work practices that transfer power to employees, often described as "high performance" practices, may rise productivity, although the statistical case is weak. However, we also find that these work practices on average raise labor costs per employee. The net result is no apparent effect on efficiency, a measure that combines labor costs and labor productivity. While these results do not appear to be consistent with the view that such practices are good for employers, neither do they suggest that such practices harm employers. They are, however, consistent with the view that these practices raise average compensation and hence may be good for employees. Overall, then, the evidence suggests that firms can choose "high road" human resources practices that raise employee compensation without necessarily harming their competitiveness.

The Link Between Job Satisfaction and Firm Value, with Implications for Corporate Social Responsibility

“…Even if job satisfaction improves job performance, it may still reduce firm value net of costs. Cappelli and Neumark (2001) found that "high-performance" practices, which delegate responsibility to employees, increase labor costs. Thus, even though they also found weak evidence of improved productivity, there is no effect on overall labor efficiency (output per dollar cost).…”

Technological change, organizational change, and job turnover

“…5 Several studies on this issue nd that HPWOs increase productivity (see for example, Ichniowski et al 1997, Batt 1999, Appelbaum et al 2000. Empirical research on the wage e ects of HPWOs suggests that these systems also increase wages, indicating that the relationship between HPWOs and pro tability i s a m biguous (Appelbaum et al 2000, Capelli and Neumark 2001, Bauer and Bender 2002. Focusing solely on wages, however, this literature does not take into account other important components of total labor costs that might also be a ected by H P W Os.…”

What Do Unions Do for Economic Performance?

“…It appears that the circumstances under which they are adopted make a difference (Kleiner et al, 2002). HRM practices that increase productivity typically increase worker compensation; thus, costs need not decline (Cappelli and Neumark, 2001). 14 Ichniowski et al (1997) also examine the effect of HRM practices on productivity.…”