Who Benefits Most from Employee Involvement: Firms or Workers?

Abstract

Employee involvement (EI) programs are the leading-edge form of personnel and labor relations in the United States. While many managers believe that these programs raise productivity and profits, the statistical evidence that EI improves the performance of firms is equivocal. The coefficients on measures of EI in production functions are usually positive but often insignificant or small (Commission on the Future of Worker–Management Relations, 1994 Ch. 2; Peter Cappelli and David Neumark, 1999) or contingent on other factors (Sandra E. Black and Lisa M. Lynch, 1997; Casey Ichniowski et al., 1997). A detailed case study of EI has further confirmed these small effects that were found in large data sets (Kleiner et al., 1999). If EI programs do not greatly affect productivity, why does business think so highly of them? In this study, we argue that the main beneficiaries of EI are workers and managers. We estimate the effects of EI on productivity using panel data on firms and the effects of EI on workers using a survey of employees and find that EI barely affects firm productivity but substantially improves worker well-being. We offer two explanations for this result.