Labor-Management Relational Capital

Abstract

Using novel data from surveys on randomly selected establishments, which include common questions asked to employees and management about their relationship, we show labor-management relational quality has a positive impact on profitability, labor productivity, and employee retention. We measure relational quality based on the distance of numerical answers of employees from those of management. We exploit within-stratum-year variation in relational quality, which is random, to predict outcomes in the next survey year. Neither responses of employees nor those of management alone predict outcomes, implying the significance of evaluating a bilateral ESG factor based on input from both parties involved. The results are driven by the cultural dimension of relational quality, establishments that offer job training to rank-and-file employees, and establishments that belong to private firms.

Keywords: intangible, firm value, corporate culture, ESG, labor productivity

JEL Classification: G32, J24, M14