The Effects of Employee Involvement on Firm Performance: Evidence from an Econometric Case Study

44 Pages Posted: 30 Sep 2003

See all articles by Derek C. Jones

Derek C. Jones

Hamilton College - Economics Department

Takao Kato

Colgate University - Economics Department; IZA Institute of Labor Economics

Date Written: September 2003

Abstract

We provide some of the most reliable evidence to date on the direct impact of employee involvement through participatory arrangements such as teams on business performance. The data we use are extraordinary - daily data for rejection, production and downtime rates for all operators in a single plant during a 35 month period, almost 53,000 observations. Our key findings are that: (i) membership in offline teams initially enhances individual productivity by about 3% and reduces rejection rates by more than 25%; (ii) these improvements are dissipated, typically at a rate of 10 to 16% per 100 working days; (iii) the introduction of teams is initially accompanied by increased rates of downtime and these costs diminish over time. In addition: (iv) the performance-enhancing effects of team membership are greater and more long-lasting for team members who are solicited by management to join teams; similar relationships exist for more educated team members. These findings, which are best interpreted as lower bound estimates of the effects of teams, are consistent with the diverse hypotheses including propositions that: (i) employee involvement will produce improved enterprise performance through diverse channels including enhanced discretionary effort by employees; (ii) various kinds of complementarities accompany many changes in organizational design (such as between teams and formal education); (iii) the introduction of high performance workplace practices are best viewed as investments, though there are significant learning effects; (iv) differences in performance for team members solicited by mangers compared to those who volunteer are consistent with various hypotheses including management signaling and opportunistic behavior by employees, but inconsistent with hypotheses based on Hawthorne effects.

Keywords: Teams, Productivity, High Performance Work Practices, Employee Participation, Human Resource Management Practices

JEL Classification: M54, J50, J41, D20

Suggested Citation

Jones, Derek C. and Kato, Takao, The Effects of Employee Involvement on Firm Performance: Evidence from an Econometric Case Study (September 2003). William Davidson Institute Working Paper No. 612. Available at SSRN: https://ssrn.com/abstract=445440 or http://dx.doi.org/10.2139/ssrn.445440

Derek C. Jones

Hamilton College - Economics Department ( email )

198 College Hill Road
Clinton, NY 13323
United States
315-859-4381 (Phone)
315-859-4477 (Fax)

Takao Kato (Contact Author)

Colgate University - Economics Department ( email )

13 Oak Drive
Hamilton, NY 13346
United States
315-228-7562 (Phone)
315-228-7033 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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