THE PRODUCTIVITY EFFECTS OF WORKER REPRESENTATION ON THE BOARD

Abstract

Using an unusually long panel data set of firms for three separate industries we find: (i) in printing, worker representation on boards has a small and positive effect on firm productivity, whereas there is no effect in other industries; (ii) by itself, profit sharing with employees enhances organizational productivity, about 3.6% in clothing, 7% in printing and 9% in footwear; (iii) the productivity effect of worker representation on the board is seldom enhanced by profit sharing-evidence on complementarities is very weak. In additional exercises, we allow decision making participation (and profit sharing) not only to directly affect output but to also affect the output elasticities of labor and capital, and, to account for the possible endogeneity of labor and the capital stock, we estimate using instrumental variables. These results essentially confirm previous findings. In addition: (iv) the productivity effect of worker directors varies considerably across industries according to size and capital intensity.

Keywords: worker representation on boards and performance, codetermination, profit sharing, complementarity hypothesis