The effectiveness of more advanced human resource systems in small firms

Abstract

In this paper, we analyze whether Human Resource (HR) systems in small firms can be associated with higher performance as well as higher wages. Our study, which focuses on Dutch pharmacies, shows that more advanced HR systems do not have any effect on firms' productivity. In these micro firms, it is only employees who significantly benefit from the introduction of both a basic and a more advanced HR system. Our findings that small firms do not significantly benefit from introducing less traditional HR practices offer an explanation for the thresholds in the diffusion of these HR practices in small firms, and suggest that in these firms formal HR practices are less important than personal relations between the employer and his or her employees.