Ilrr2001 Cappellinewmark

Do "High-Performance" Work Practices Improve Establishment-Level Outcomes?
Author(s): Peter Cappelli and David Neumark

Source: ILR Review, Vol. 54, No. 4 (Jul., 2001), pp. 737-775
Published by: Sage Publications, Inc.
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DO "HIGH-PERFORMANCE" WORK PRACTICES
IMPROVE ESTABLISHMENT-LEVEL OUTCOMES?
PETER CAPPELLI and DAVID NEUMARK*
Studies of how different work practices affect organizational perfor-

mance have suffered from methodological problems. Especially intrac-
table has been the difficulty of establishing whether observed links are
causal or merely reflect pre-existing differences among firms. This
analysis uses a national probability sample of establishments, measures
of work practices and performance that are comparable across organiza-
tions, and, most important, a unique longitudinal design incorporating
data from a period prior to the advent of high-performance work
practices. The conclusion most strongly supported by the evidence is
that work practices transferring power to employees, often described as
"high-performance" practices, raise labor costs per employee, suggest-
ing that they may raise employee compensation. Higher compensation
is a cost to employers, although some statistically weak evidence points
to these practices raising productivity. The authors find little effect of
high-performance work practices on overall labor efficiency, which they
measure as the output per dollar spent on labor.
Arguments suggesting that alternative back at least to the beginnings of industri-

systems for managing employees and alization. Recent empirical research has
organizing their work might lead to supe- attempted to estimate the benefits associ-
rior employee performance and, in turn, ated with "high-performance" work prac-
superior organizational performance go tices. The findings are suggestive of impor-
tant effects but, taken as a group, remain
*Peter Cappelli is George W. Taylor Professor of

Management and Director of the Center for Human
Resources at the Wharton School of the University of Post-Secondary Improvement and funded by a grant
Pennsylvania. David Neumark is Professor of Eco- from the U.S. Department of Education's Office of
nomics, Michigan State University. Both authors are Educational Research and Improvement.
affiliated with the NBER. The authors thank William Public use versions of the NES data used here are
H. Carter for careful research assistance, Arne Reznek available from the Bureau of the Census and its
and colleagues at the Center for Economic Studies of Center for Economic Studies (www.ces.census. gov).
the U.S. Bureau of the Census for help with data The complete version of the NES data and the other
issues, and Edward Lazear, David Levine, and Lisa data sets used here are available on successful appli-
Lynch for helpful comments. This research is part of cation to the Center for Economic Studies. Programs
a program of studies using the National Employer used for these analyses are available from the first
Surveys that is conducted by the National Center on author.
Industrial and Labor Relations Review, Vol. 54, No. 4 (July 200 1). ? by Cornell University.
0019-7939/00/5404 $01.00
737
738 INDUSTRIAL AND LABOR RELATIONS REVIEW
inconclusive. I In this study of high-perfor- to employees over at least some range of

mance work practices, we use a national decision-making (maintaining sufficient
probability sample of establishments, mea- managerial control) increases the total sur-
sures of work practices and performance plus or rent produced by a firm, but it also
that are comparable across organizations, increases the share of rents going to work-
and, most important, a unique longitudi- ers. Thus, in the context of this model, we
nal design incorporating data from a pe- can think of innovative work practices as
riod prior to the advent of high-perfor- potentially acting like works councils, pos-
mance work practices. Together, these sibly increasing productivity, but also likely
features of our study address the central increasing labor costs, with ambiguous im-
methodological problems that have plagued plications for unit labor costs (and profit-
past research. While we do not decisively ability). At the same time, in the model the
solve these methodological problems, we signs of the effects of practices transferring
believe that our data and approach repre- control to employees depend on the range
sent an advance in the empirical analysis of of control we are considering, with positive
this topic; at a minimum, they provide evi- effects on productivity and labor costs if
dence significantly complementing that firms are implementing these policies be-
which already exists. ginning in a situation in which workers
The outcomes of the implementation of have insufflicient autonomy or control.
the innovative work practices that we study
are sales per worker, total labor costs per
Related Research
worker, and the ratio of those two mea-
on Work Organization
sures, or the inverse of unit labor costs.
These outcomes are intended to capture, The research on work organization and
in a broad sense, the criteria on which on attempts to reform it is vast. Good
different parties in the workplace are likely reviews are provided by Cotton (1993) and
to evaluate innovative work practices. Em- Appelbaum and Batt (1994). An important
ployees are better off with higher labor innovation in the study of work systems
costs per employee. Employers gain from during the 1990s was research specifically
higher productivity, but also care about designed to examine relationships with
labor costs, prompting us to evaluate ben- organizational performance. Here, we pro-
efits to them in terms of unit labor costs. vide a selective review of this literature that
The relevance of these outcomes can highlights the methodological improve-
also be motivated by a simple model of ments we offer, which include our use of a
practices that transfer power to employees, large probability sample; our consideration
developed by Freeman and Lazear (1995); of a wide array of innovative work practices,
although their paper considered works and pre-specified complementarities
councils, it is applicable to similar situa- among them; our focus on organization-
tions. In the model, the transfer of power level performance; and our use of a unique
longitudinal design that permits us to ad-
dress the issue of establishment-level het-
erogeneity without exacerbating measure-
ment error biases in the estimated effects
'In our view, labeling work practices "high-perfor-
of these work practices.
mance is potentially confusing. The highly influen-
Some of the motivation for this line of
tial America's Choice (National Commission on Skills
of the Workforce 1989) report appears to have made research came from studies in the indus-
the phrase "high-performance work practices" popu- trial organization economics tradition at-
lar. The confusion comes from assumptions about tempting to understand the components of
the etymology of the name-whether these practices
profitability. Hansen and Wernerfelt
have already been identified as associated empirically
with superior performance on some dimension (ei- (1989), for example, found that internal
ther of employees or of the organization), as many characteristics of firms-many of which may
assume and some assert, or whether it is just a name. relate at least indirectly to work practices-
"HIGH-PERFORMANCE" PRACTICES AND ESTABLISHMENT OUTCOMES 739
explained almost twice as much of the vari- costs need not fall and could rise, with
ance in profitability between firms as did ambiguous implications for profitability.
characteristics of the industry and the firm's Alternatively, labor or other input costs
position in it, the traditional explanations may rise, or there may be direct costs of
for differences in profits. The primary implementing new work practices.2
motivation for research examining the ef- A number of studies that followed the
fects of workplace practices on organiza- first wave of research on work practices and
tional performance, however, was the grow- organizational performance have focused
ing interest inJapanese management prac- in large part on productivity-related per-
tices, driven by concern about the inad- formance measures, and have narrowed
equacies of U.S. manufacturing in general the scope of the examination to particular
(for example, Dertouzos et al. 1988). The industries (Ichniowski et al. 1997;
initial interest in Japanese management Ichniowski and Shaw 1998; Delery and Doty
focused on employee management and 1996; Delery et al. 1997; Cappelli and
concepts such as job rotation, teamwork, Rogovsky 1998; Batt 1999; and Appelbaum
and practices that supported greater em- et al. 2000). While diverse in approach and
ployee involvement (especially training and in the type of data used, these studies tend
employment security). to point to performance gains as captured
The first wave of this research on organi- in productivity. The approach of concen-
zational performance found thatJapanese- trating on a single industry and examining
influenced practices were associated with productivity has the decided advantage of
increased productivity (Katz et al. 1983; ensuring that performance measures are
Katz et al. 1985). Later research resulting more comparable across observations. It
from the International Motor Vehicle also allows observations to be taken from
Project at MIT provided evidence of the units of analysis closer to where work prac-
superiority of Japanese assembly plant op- tices occur, unlike financial measures, such
erations in terms of productivity and qual- as shareholder value, which can only be
ity (Womack et al. 1990), and complemen- obtained at the corporate level. Financial
tarity between work practices such as teams measures can more easily be swamped by
and contingent compensation, on the one unrelated factors; the stock price of a huge
hand, and flexible production techniques, conglomerate like General Electric, for
on the other (MacDuffie 1995). example, is likely to be driven by a wide
The general framework underlying this range of factors in addition to work prac-
research, even if not always made explicit, tices, and it is very difficult to measure work
is that workplace innovations change the practices accurately across an entire corpo-
production function in such a way as to ration. The downside of focusing on pro-
increase the productivity of a firm's inputs,
in particular labor. Presumably the firm's
motivation is to increase profits. The first
step in much of this literature, therefore,
2A broader perspective than that provided by the
has been to estimate how labor's productiv- neoclassical theory of the firm is that an organization's
ity changes with the introduction of various human resource practices are a strategic asset that,
high-performance work practices. More coupled with other aspects of a firm's strategy, put it
in a position to compete along dimensions other than
recent research has gone beyond produc-
price or cost (for example, Becker and Gerhart 1996).
tivity to attempt to study firm or establish- In this case, simply looking at productivity and input
ment performance. This is important be- costs is not sufficient, as unique human resource
cause it is possible for the productivity of practices-which may entail a higher-skill, higher-
labor to rise without necessarily increasing cost work force-may help the firm generate rents,
necessitating a look at profitability. On the other
profitability. For example, a shift toward
hand, tempering the view that this alternative per-
more-skilled labor (in a productivity study spective on work practices is critical to competitive
that does not control for labor quality) advantage and profitability is the likelihood that these
boosts labor costs, in which case unit labor work practices can be imitated by competitors.
ductivity is that it leaves open the question tistical significance of these effects was not
as to the costs of those productivity gains reported.)
and whether, on balance, they increase firm Huselid (1995) followed Ichniowski's
efficiency or performance. This problem (1990) approach using cross-sectional data
has been addressed in some, but not all, of on a sample of publicly held companies
the existing studies (see below). And the with more than 100 employees. The data
drawback of focusing on a single industry, included 13 measures of employment prac-
of course, is that it limits the ability to tices (some of which were taken from the
generalize the results to other settings. Ichniowski study), including questions
The present study has more in common about work practices and employee involve-
with a second relatively recent line of re- ment. Huselid used factor analysis to con-
search, which has attempted to examine struct two variables measuring the extent of
the relationships between work practices use of various work practices-some of
and overall firm-level performance using which could be considered part of high-
measures of financial outcomes, while mov- performance practices-and found that
ing away from a focus on a single industry. greater use of such practices was associated
Ichniowski (1990), the first in this line of with lower turnover and higher productiv-
studies, attempted the conceptually diffi- ity per employee. The results were some-
cult task of relating sets of employment what less successful at explaining overall
practices to firm-level financial perfor- firm financial performance, as the factor
mance. The low response rate (under 7%) capturing practices aimed at employee in-
and small sample made it difficult to draw centives was not significantly related to re-
robust conclusions from his cross-sectional turn on assets, and the factor measuring
data, but the results seemed to suggest that work systems was weakly related to Tobin's
a cluster of practices that included enriched q. He also considered the question of
job design was associated with higher finan- synergies, mainly examining whether the
cial performance than were other clusters practices were applied consistently across
of practices. The fact that somewhat simi- the organization, and found little evidence
lar sets of practices were associated with of such synergies. Unfortunately, data limi-
significantly worse performance could im- tations apparently prevented him from ex-
ply that there was a benefit to having just amining possible synergies between indi-
the right combination of practices. How- vidual practices, which Milgrom and Rob-
ever, this sensitivity also highlights the po- erts (1995) and others have suggested are
tentially arbitrary nature of the clusters potentially the most important kind of syn-
chosen for examination-given the large ergies.
number of permutations possible among Huselid and Becker (1996) conducted a
the practices, the a priori argument for panel study of the relationship between
choosing any particular cluster must be work practices and organizational perfor-
compelling. mance based on a 1994 survey (covering
Cooke (1994) examined the effects of 1993) that was a follow-up to Huselid's
employee participation and group incen- 1991 data. The study examined the same
tive compensation plans (profit-sharing and relationships as did Huselid (1995), but
gain-sharing) on value added per employee used the panel data to control for unmea-
for a sample of manufacturing firms in sured firm-level heterogeneityvia firm fixed
Michigan. He found that these work effects. When this was done, the cross-
practices tended to increase wages, but sectional relationships became small and
by less than the effect on value added, so statistically insignificant.
that performance-as measured by the As Huselid and Becker noted, the nature
effect on value added minus the effect on of their panel may have contributed to the
wages-appears to have been enhanced absence of an apparent relationship. The
by the same practices that boosted value first potential problem is that firms that
added. (Unfortunately, however, the sta- adopt practices early on may do so because
such practices are especially useful for them, the farther apart the observations, as the
while those that adopt them later may have rate of misclassification should remain the
waited in part because the practices have same, while the number of true changers
less value for them. The latter group may, increases. Thus, estimates that rely on the
for example, adopt them simply to follow difference in values for observations over a
trends or fads, or after the costs of imple- short panel increase the role of measure-
mentation fall. When the incidence of a ment error and hence are likely to be bi-
practice is already high in the first wave of ased considerably more toward zero.4 The
a panel, those who adopt the practice late extent to which this is the case and whether
in the sample period covered by the panel it negates the advantages of addressing het-
are late adopters. To the extent that this is erogeneity depends on the extent of mea-
the case, fixed-effects estimates based on surement error, its correlation over time,
longitudinal data are likely to focus more and the magnitude of the heterogeneity
on the late adopters in the more recent bias. In any event, when panel data esti-
period, so that the estimates are based on mates of the effects of work practices are
firms for whom the effects may not be as smaller (in absolute value) than cross-sec-
strong (see also Freeman and Kleiner 1998). tion estimates, we cannot tell without addi-
Longitudinal data identifying when prac- tional information whether this result is
tices were introduced can help to address due to a reduction of the bias from hetero-
this problem, as can data including the geneity or an exacerbation of the bias from
earliest adopters, such as we use in this measurement error.5
paper. Black and Lynch (1997) is perhaps most
The second potential problem that may similar to the study we perform here, in
have contributed to the absence of an ob- part because it used data from the 1994
served relationship concerns the exacerba- National Employers Survey (NES), which is
tion of measurement error that can occur one source of data we use (described be-
in panel observations. The advantage of low). Black and Lynch attempted to con-
panel data is that they provide information trol for the problem of heterogeneity by
on changes in practices, which is necessary using repeated observations over the 1988-
for estimating fixed-effects models. But 93 period taken from matched data in the
such information is typically based on re- Census Bureau's Longitudinal Research
sponses from more than one survey, which Database (LRD). They first constructed a
can compound measurement error. The ,\within" estimator in an attempt to gener-
Huselid and Becker surveys are only two ate more accurate estimates of the coeffi-
years apart, and the work practices they cients of the time-varying variables (capi-
studied were already prevalent in 1991, tal, labor, and materials), and then esti-
with little difference in their use between mated the effects of work practices in a
1991 and 1993 (Huselid and Becker second stage using the estimates from the
1996:411). In such a case, the proportion
of true changers relative to total reported
changers is likely to be much lower than the
proportion of the true incidence relative to
reported incidence in a cross-section, be-
cause random misclassification of practices 4Huselid and Becker (1996) provided a straight-
forward exposition of this well-known point for the
(if uncorrelated across years of the panel)
case of continuous variables. The extension to indi-
will generally contribute a higher propor- cator variables (such as those measuring work prac-
tion of the "changers" than it does of those tices) is more complex (Freeman 1984).
using a particular practice in a cross-sec- 5Huselid and Becker (1996) proposed a method of
addressing this measurement error bias in the panel
tion.3 The problem should be less severe
estimates, which we discuss below. In using this
method, results more consistent with the cross-sec-
3Freeman (1984) demonstrated that this is true as tional evidence were found only for one of the two
long as the rate of misclassification is moderate. performance measures they study.
first stage to form average residuals for terms of traditional accounting measures
each establishment, which they regressed of financial performance and in terms of
on the work practice (and other) variables stock prices.
from the NES. Because they had no infor- The existing research on work practices
mation on work practices other than in and organizational performance offers
1993, the study effectively assumed that some general conclusions. First, as Becker
these practices and other variables were and Gerhart (1996) observed, there is con-
fixed over the 1988-93 period. siderable variety in how prior researchers
Black and Lynch's approach had two have interpreted the practices that consti-
limitations. First, as the authors acknowl- tute "high-performance" work practices.
edged (p. 19), it did not correct for a corre- They count 27 different variables used as
lation between unobserved establishment- proxies for high-performance work prac-
specific effects and work practices, which is tices across only five studies, and only four
the heart of the heterogeneity problem. of those practices are common in more
Second, other evidence (see below) sug- than three of the studies. Nevertheless,
gests that use of the work practices they there does seem to be a core set of common
considered expanded considerably in the practices across most recent work reform
1988-93 period, which makes it difflicult to efforts in the United States. Appelbaum
sustain the assumption necessary for their and Batt (1994) asserted that the reform
analysis that the incidence of work prac- efforts all represent a reaction to mass pro-
tices was constant over this period.6 Also, duction work systems, and that these center
their results looked only at productivity, on the notion of employee involvement
and it is important to know what the effects through teamwork, quality circles, and,
are on other dimensions of performance, more recently, TQM programs.7 In the
such as costs and the efficiency with which Becker and Gerhart (1996) survey, all of
labor is used. the research surveyed, with one exception,
Easton andJarrell (1998) examined the included questions about teamwork prac-
effects of introducing one particular tices, by far the most common practice
practice (TQM programs) on the subse- across the studies. It seems fair, therefore,
quent financial performance of publicly to assert that the central hypothesis being
held firms. Rather than rely on a random tested in prior research on high-perfor-
sample, their technique compared a sample mance work practices is whether employee
of firms that introduced these practices to involvement is associated with improved
a matched set of otherwise similar firms organizational performance.
that did not introduce them. Of course, A second set of conclusions concerns the
whether this matched sample eliminates relationships with organization-level per-
bias from firm-level heterogeneity better
than a more conventional cross-section
sample depends on how well the match
controls for unobservables potentially asso-
7The job design research suggests that teamwork
ciated with these work practices. Easton and related practices may affect employee perfor-
andJarrell found that firms that introduced mance through different mechanisms associated with
TQM did better than other firms both in the structure of individual tasks. Cappelli and
Rogovsky (1998) attempted to distinguish empiri-
cally between performance effects associated with
employee involvement per se and those associated
with job design, a task that essentially requires de-
tailed information about what individual workers ac-
6Given that they are averaging productivity mea- tually do on the job. It is very difficult to distinguish
sures over years when, for some establishments, these between these two types of effects at the organiza-
work practices were not in use, we would expect any tional level of analysis, however, given that teamwork
estimated effects to represent some average of the and related practices enhance both employee in-
effects of having implemented these practices (at volvement and job enrichment and, in both models,
different points in the past) and no effect. should be associated with improved performance.
formance. The stronger evidence concerns specific practices; it is frequently referred

productivity effects, whereas evidence on to as the "contingency" model, in contrast
efficiency or overall performance effects, to the notion that high-performance prac-
factoring in costs as well, is weaker and tices improve organizational performance
more sporadic. The results tend to be irrespective of the context, a view referred
stronger for studies within industries than to as the "universalistic" model. The con-
across industries, perhaps because measures tingency model has a great deal of intuitive
of performance within industries are less appeal and could explain, for example,
contaminated by extraneous factors, and why the different industry-based studies
hence more accurately measure true per- include different work practices in order to
formance differences across firms. But in- capture the underlying concept of high-
dustry studies typically examine productiv- performance work systems in particular
ity and do not consider costs or overall industries. The problem with the contin-
performance or competitiveness. Some of gency model is that, at least given the present
the financial measures used in the other state of research, it is difficult to specify a
studies implicitly assess costs and benefits priori what combination of work practices
and therefore set a higher threshold for and other contingencies will approximate
judging performance. Only one represen- the underlying concept (except, of course,
tative, national-level study found strong for replication studies). In the absence of
relationships between practices and finan- such guidance, it is difficult to know what
cial performance (Huselid 1995), although practices should be controlled for and what
those results could not be replicated using practices must co-vary with the particular
conventional methods with panel data work practices, in order to truly capture
(Huselid and Becker 1996). The other high-performance work practices in each
studies using financial outcomes found context.
mixed results, with some suggesting posi-
tive effects associated with certain prac-
Methodological Issues
tices. In addition, one might view the accu-
mulated evidence as somewhat weakened The analyses in this paper are similar to
by the fact that the set of variables showing the organization-level studies reviewed
significant relationships often differs across above (under "Related Research") in that
studies. they examine work practices and their rela-
Most of the organization-level studies tionship with organization-level perfor-
are also heavily conditioned by context. mance. They differ from prior studies, and
The industry studies, for example, find re- in our view represent an advance over them,
lationships in narrowly defined fields and because the characteristics of the data used
conditioned on other practices, such as allow us to address important methodologi-
manufacturing and production systems like cal problems that have plagued research on
"lean production." These contextualized work practices and organizational out-
studies raise obvious questions about the comes.
generalizability or external validity of their First, the surveys from which our data are
results with respect to other settings. Becker taken provide large, representative samples
and Gerhart (1996) suggested that one of establishments with comparable outcome
might think of a general approach to man- measures. Many previous studies, in con-
aging employees such as employee involve- trast, responding to a paucity of represen-
ment as "human resource architecture," tative samples at the organizational level,
and that different settings might require have instead used samples from specific
different practices in order to achieve the industries, samples of convenience, or
same type of human resource architecture. samples based on surveys with low response
This approach suggests that specific work rates.
practices might improve organizational Second, we use a large set of possible
performance only in the context of other high-performance work practices, and pre-
specify the sets of work practices for which ity issue. Because we are not identifying the
we want to test for synergies or effects of work practices from "late adopt-
complementarities. One important issue ers," we get closer to a true "average" effect
noted above is the lack of agreement as to of these practices, at least on those estab-
which practices to examine under the head- lishments that have adopted them thus far.
ing of high-performance work systems, es- In addition, if the effects of work practices
pecially for the industry-specific studies. take some time to emerge (or, in principle,
The analyses of synergies among practices to fade away), a long panel makes it more
may be the weakest part of the prior litera- likely that enough time has elapsed to re-
ture. Although most studies assert that veal these effects. Another consideration is
there are positive interactions between prac- that this research design does not rely on
tices, few present arguments describing how respondents who discontinue use of work
particular practices should interact with practices to help identify the effects of these
each other. Unfortunately, when research- practices, which is advantageous given that
ers are presented with a wide array of pos- adopting and discarding such practices may
sible work practices with little theoretical not have symmetric effects (although in
guidance as to how they interact, data min- principle this can be tested). Third, the
ing possibilities abound. Researchers may number of changers in a short panel is
discover combinations of practices that small, likely rendering such data uninfor-
appear to affect performance significantly mative.
in their data sets, but whose effects are Most important, however, this longitudi-
idiosyncratic to those data and not likely to nal design allows us to avoid the problem of
be robust across settings. By pre-specifying exacerbating measurement error, which
the sets of work practices we study, based typically arises in using panel data to ad-
on theoretical considerations, we avoid dress heterogeneity issues. If none of the
potential data mining. work practices were in place as of the first
Third, the possibility that firms or estab- wave of the panel, then the sample of
lishments already performing well might "changers" (who identify the effects of work
have a greater ability to adopt practices that practices when we difference the data) con-
have come to be labeled "best practices," as sists of the entire set of establishments us-
well as a greater interest in doing so, im- ing these practices in the later cross-
plies that the apparent positive effects of section. This is in contrast to the small
work practices on productivity or perfor- subset of respondents who report changes
mance may not be causal but rather may in practices in short panels. That is, the
simply reflect firm- or establishment-level work practices "treatment" variables are
heterogeneity. Failure to address hetero- exactly the same in the cross-section speci-
geneity to establish causation is, in our fication and the specification incorporat-
view, a central problem plaguing prior re- ing fixed establishment effects, so there is
search. We are able to match surveys to no exacerbation of measurement error in
create panel data that allow us to address the work practice variables.8 Of course, this
the issue of heterogeneity across establish-
ments and hence attempt to draw stronger
causal inferences. Specifically, we are able
8Huselid and Becker (1996) attempted to solve
to form panels in which one of the waves
this problem in a different manner using their short
was conducted before the work organiza-
panel. They used factor analysis of a number of work
tion practices under consideration were practices to construct a single proxy for "high-perfor-
introduced. mance" work practices. They then used estimates of
The ability to measure performance be- Cronbach's "alpha" from their factor analysis as esti-
mates of the reliability of readings on this proxy over
fore these work practices were introduced
time. This strikes us as a questionable approach,
offers important advantages over shorter because the authors did not really have any informa-
panels of the type used by Huselid and tion on the accuracy of the reports about these work
Becker (1996) to address the heterogene- practices. That is, they could evaluate the statistical
strategy hinges crucially on the absence of more than 20 employees account for ap-
these work practices in the period covered proximately 75% of all workers (Lynch and
by the earlier wave of the panel data set. In Black 1998). In addition, very small estab-
addition, the requirement of a long panel lishments are unlikely to be appropriate
poses some tradeoffs with regard to study- for or amenable to studying work practices,
ing a representative sample of organiza- because their working arrangements are
tions. These issues are discussed in the often so informal and variable (changing
following sections. day-to-day in response to even routine de-
velopments such as absenteeism) as to make
Data, Hypotheses, and Measurement it difficult to respond in a meaningful way
to questions about work systems.
Samples The target respondent for the NES was
the plant manager in the manufacturing
Our data come from establishment-level sector, and the local business site manager
surveys of employment practices conducted in the non-manufacturing sector. Other
by the U.S. Bureau of the Census for the surveys have targeted the human resource
National Center on the Educational Qual- manager. But the goal was to measure how
ity of the Work Force. The original Na- work is actually done in the facility, not the
tional Employers Survey (NES I) was ad- policies that might exist in employee hand-
ministered by the Bureau of the Census as books; the best person to ask about actual
a telephone survey in August and Septem- operating practices is the person in charge
ber 1994 to a nationally representative of operations in the establishment, not the
sample of private establishments with 20 or manager in charge of personnel policies.
more employees. It is structured to provide The questionnaire was designed to allow
information about establishment perfor- for multiple respondents so that informa-
mance in 1993, although the questions re- tion could be obtained from establishments
garding work practices refer to the time of that kept financial information, for ex-
the survey (1994), possibly introducing ample, in a separate office-typically at
slight measurement error if there were some corporate headquarters for multi-establish-
very recent introductions of these prac- ment enterprises. Computer Assisted Tele-
tices.9 phone Interviewing (CATI) was used to
The survey over-sampled establishments administer each survey, which took approxi-
in the manufacturing sector and establish- mately 28 minutes to complete.
ments with more than 100 employees. Pub- The sampling frame for the survey was
lic-sector employers, non-profit institutions, the Bureau of the Census's Standard Statis-
and corporate headquarters were excluded tical Establishment List (SSEL), a compre-
from the sample, as were establishments hensive and up-to-date listing of establish-
with fewer than 20 employees. Establish- ments in the United States. Of the 4,633
ments with fewer than 20 employees repre- eligible establishments that were contacted
sent approximately 85% of all establish- by Census, only 1,275 refused to participate
ments in the United States, but those with in the survey. This represents a 72% re-
sponse rate, which is substantially higher
than in any of the other surveys used in the
studies summarized above. The usual rea-
reliability of the factor(s) identified from their analy-
sis, but not of the underlying data used to construct
son given by employers for non-participa-
the factor(s). Thus, if we accept the underlying data tion in the survey was that they did not
as accurate, their approach is convincing; but, of participate in voluntary surveys or were too
course, the accuracy of the data is the fundamental busy to do so. Analysis of the characteristics
problem. Another potential problem is that they are
of respondents and non-respondents indi-
unable to implement their methods on regressions
with any control variables. cated that there was no statistically signifi-
9The 1997 NES described below has the same cant pattern of differences at the two-digit
structure. industry level in the likelihood of partici-
pating in the survey (Lynch and Black 1998). ment from the same observation."2 The
The only differentiating characteristic of need to obtain labor cost data from the
establishments less likely to participate was 1992 or 1993 LRD in using NES I, and the
that manufacturing establishments with match to much earlier LRD observations in
more than 1,000 employees, constituting constructing our panels (discussed in the
0.1 % of the sample, were less likely to do so. next section), limit the analysis to manufac-
The final numbers of surveys satisfying mini- turing establishments, which constitutes the
mal criteria for data availability were 1,621 sampling frame of the LRD.
for establishments in the manufacturing As explained earlier, we construct much
sector and 1,324 for establishments in the longer panels by matching establishments
non-manufacturing sector. in the NES cross-sections to data on these
The survey was repeated in August 1997 establishments prior to the introduction of
(NES II), again administered by the U.S. the work practices we consider. In particu-
Bureau of the Census via CATI. The sam- lar, we use the LRD for the year 1977. The
pling frame was again drawn from the SSEL, LRD does not offer information about work
with the same targeting and over-sampling practices, but does contain information
as NES I. The sample for the NES II has two about establishment performance, produc-
additional components: an over-sampling tive inputs, and other plant-level character-
of states involved in particular educational istics and variables. The LRD is a panel of
reform efforts (2,000 completed interviews establishments including all establishments
in California, Kentucky, Michigan, Mary- in years in which a Census of Manufactures
land, and Pennsylvania); and a longitudi- (CM) is carried out (years ending in a two
nal component of about 900 completed or seven); and many fewer establishments
interviews with business establishments that in intervening years (from the Annual Sur-
had participated in the NES I. The NES II vey of Manufactures). Among CM years-
had a response rate of 78%. Applying for which the most data are available-
criteria similar to those we used for NES I, 1977 is arguably the most recent period for
we end up with 2,516 establishments in the which it is reasonable to assume that the
manufacturing sector and 1,847 in the non- work practices under consideration in this
manufacturing sector. study had not yet been introduced.
Finally, labor costs per worker is a crucial Figure 1 outlines the construction of the
performance measure in our analysis and is data sets we analyze, along with their sample
available in NES II but not NES J*1O We sizes. We also present descriptive informa-
therefore matched establishments in NES I tion on the short longitudinal panel based
to data from the 1993 LRD (or the 1992 on the two NES files, for which we report
LRD, if 1993 did not yield a match) to very limited analyses. Appendix Table Al
extract labor costs per worker.11 To main- provides further details on the construc-
tain consistency with the denominator of tion of the samples. Panel A reports how
this variable, we also took total employ- the sample sizes change from the original
NES's as the various sample selection rules
are imposed. The final products that we
analyze are long panels with 433 complete
10We experimented with estimating labor costs in
observations (that is, after accounting for
NES I based on data on the proportion of costs
item non-response, data errors, and so on)
accounted for by labor (LC/TC) and other input
costs, using the formula labor costs = ((LC/TC) x
other input costs)/(l - (LC/TC)). But these esti-
mates were very noisy and did not replicate patterns
expected and found in NES II, such as a negative
association with the percentage female. NES I and the 1993 LRD. Thus, we obtain approxi-
"1Although the sampling frame for NES I is the mately 40% of matches from the 1993 LRD, and 60%
SSEL, the establishment size restrictions in the NES's from the 1992 LRD (which includes the entire Census
and over-sampling or certainty sampling of large es- of Manufactures).
tablishments lead to considerable overlap between 12Further details appear in the notes to Table 2.
Figure 1. Constructed Manufacturing Data Sets.
1977 LRD
1994 NES
work practices, work force 1977-1993
and plant characteristics, Panel
some performance measures 1993 Full Sample N = 433
N = 665\
1992,1993 LRD 1993-1996

labor costs/worker Panel
(1993 dollars) r N = 205
1997 NES
1996 Full Sample
N= 1,155
1977-1996
Panel
1977 LRD I= 666
11977 LRDr
for the 1977-93 period, and 666 observa- tures). It suggests, in particular, that our
tions for the 1977-96 period.13 results may be more relevant to under-
Clearly, while our analysis sample is based standing why existing employers switch to
on a sampling frame designed to yield a high-performance work practices than to
representative sample, the various criteria understanding why new firms begin with
for inclusion in the analysis samples (re- those practices. In addition, longevity or
sponse to the survey, valid data, and so on) attrition may be related to both selection
may limit the representativeness of the data. and use of innovative work practices and
More important than these considerations, the magnitudes of the effects of these prac-
however, is the non-representativeness of tices.14 Of course, we do not have the
the longitudinal panels stemming from the requisite data to fully assess questions re-
requirement of a match to the 1977 LRD. garding representativeness. However, Panel
The most direct implication of this is that B of Appendix Table Al reports the means
our sample is not representative of the for some baseline characteristics (number
current population of establishments, but of workers, establishment age, and indus-
rather only of those with a relatively long try) for establishments in the full 1993 cross-
history. This implies that our estimates are section and for those in the 1977-93 panel
not informed by the experiences of newer (establishment age is unavailable in the
establishments, some of which may be at NES II). As we might expect, the matched
the forefront of the adoption of high-per- establishments are larger and older. But
formance work practices (for example, Sat-
urn, the Baby Bells, stand-alone steel finish-
ing lines, many other telecommunications
establishments, and Japanese joint ven- 141f, for example, companies with sub-par perfor-
mance fail to adopt innovative work practices and
also tend not to survive, then a sample of survivors will
be biased against finding beneficial effects of these
13We also analyzed a full 1993 cross-section with work practices. We note, however, that Helper et al.
665 observations, to incorporate information on work (1999) found that in a sample of auto supply estab-
force and plant-level controls not available in the lishments, those that established employee involve-
LRD, for which we discuss a limited set of results. ment programs were, if anything, less likely to survive.
the industry distribution is quite similar. clear criteria for deciding which among the
Nevertheless, readers should keep these array of contingencies in prior studies
sampling limitations in mind when attempt- should be replicated.
ing to draw general conclusions from our Table 1 outlines the work practice vari-
evidence. ables used in the analyse-s, their definitions
in the survey, and descriptive statistics about
them across surveys.15 The surveys asked a
Variables and Hypotheses
number of questions about work practices,
The arguments outlined earlier suggest with a particular focus on those that rely on
that employee involvement is the central employee involvement and related aspects
concept behind virtually all of the studies of transformed work systems. As Table 1
examining high-performance work systems indicates, some of these work practice vari-
and organizational performance. The ques- ables are available only in NES I while the
tion, therefore, is what variables might best others are asked in both surveys. Rather
serve as proxies for that concept and the than focus only on NES I, however, we have
practices that support it. In prior studies, chosen to construct and analyze two long
teamwork is typically the mechanism exam- panels (1977-93 and 1977-96, the latter
ined through which employee involvement using NES II) because of the importance of
operates (specifically, self-managed teams, trying to establish robust results in a litera-
time spent in team meetings, and other ture where robust results are lacking. The
arrangements that involve employees in work practice variables available in at least
decision-making, such as TQM practices). one of the two NES's, descriptions of them,
It is plausible that other practices, such as and in some cases mention of specific hy-
suggestion systems, could create a sense of potheses, are listed below:
employee involvement as well. Detailed
TQM-Formal TQM programs include em-
questions about the extent of these prac- ployee involvement as an explicit component of
tices would be useful. The more difficult their operations.
question is what else to include in measures
SELFMNG-Self-managed or autonomous teams
of high-performance work systems, or which give their members authority over decisions
practices support the central notion of that in other contexts are made by supervisors,
employee involvement. As noted above, such as how to perform their tasks or, in more
the prior literature ranges widely with re- advanced situations, which tasks to perform.
spect to these ancillary variables (especially MEET-Regularly scheduled meetings to discuss
the industry-specific studies), but our read- work-related problems. These meetings may
ing of the literature suggests that job rota- include low levels of employee involvement,
tion, supportive training, and complemen- such as in the case of quality circles run by
tary compensation practices (gain-sharing supervisors, or higher levels, such as when em-
to support involvement and pay-for-skill to ployees manage the meetings and make deci-
sions themselves.
supportjob rotation) are the ancillary prac-
tices most commonly considered. TEAMWORKTRN-Teamwork training is a proxy
The hypothesis we are testing is the "uni- for how seriously the organization views team-
work. The argument is that, other things equal,
versalistic" version, which argues that high-
establishments that invest in training teams are
performance practices should affect orga-
ones that allow teams to handle more important
nizational performance across contexts.
tasks.
The "contingency" hypothesis-according
JOBROT-Job rotation is an aspect ofjob design
to which the effects of work practices are
that increases variety and employee understand-
specific to particular industries, types of
firms, periods, and so on-has some intui-
tive appeal, but there is no consensus even
about which contingencies matter, let alone 15The survey instruments are available. at
a general contingency model that could be www.irhe.upenn.edu/research/research-main.html#
tested across industries. Nor are there nes.
ing of other aspects of the operation. It is also practices not only because we miss the ex-
a central aspect of cross-functional teams. perience of newer establishments, but for
CRossTRN-Cross-training is a proxy for how other reasons as well. First, establishments
seriously the establishment views job rotation may have adopted innovative work prac-
(and teamwork generally, to the extent that tices and experienced higher compensa-
responsibilities are shared within teams). As tion or higher productivity as a result of
above, establishments that invest in training
some other influence that is not captured
employees for otherjobs should be much more
in our control variables. Alternatively, fail-
likely than other establishments to make use of
ure to replicate a positive cross-sectional
those skills by rotating employees across those
effect of a work practice (on productivity,
jobs.
for example) in the longitudinal estima-
PAYSKILL-Pay-for-skill programs specify certain
tion may not necessarily imply that the
skills that are important for the organization
and then reward employees with increased com-
work practice does not boost productivity.
pensation when they have acquired those skills. It may be that in the earlier period, the
Pay-for-skill is typically viewed as an important innovative work practices that are now re-
complement to teamwork and especially job ceiving so much attention would not have
rotation in that it supports learning the skills been particularly valuable, given changes
needed in such situations. in product markets and technology. At the
PROFITSHAR-Gain-sharing, profit-sharing, and same time, establishments that imple-
related programs that provide employees a share mented a particular practice by 1993 may
in improved performance of the establishment have been "leaders" in some other way in
are typically seen as a strong complement to 1977, using means other than these work
employee involvement programs that give them
practices to attain higher productivity. Es-
the mechanism to contribute to greater perfor-
sentially, this is an argument that there
mance. (In fact, observers suggest that gain-
could be an unobservable in 1977 (but not
sharing without involvement is largely ineffec-
tive.)
1993) that is positively correlated with adop-
tion. This would obscure an effect of the
We also examine three other workplace work practice in the longitudinal estima-
practices that are sometimes associated with tion, even though adoption in 1993 would
innovative work systems, in order to pro- benefit other establishments. Finally, an-
vide some comparisons with the relation- other point this raises is that we cannot
ships above: necessarily distinguish between the effect
BENcHMRKG-Benchmarking is a formal system of implementing the practice and a change
of learning about practices at other organiza- in the value of the practice. If the adoption
tions. It may also be a proxy for establishments of the work practice in the later data still
that are in general more progressive about their approximates random assignment, then this
practices. only affects inferences regarding the value
MGRCMPTRUSE and WKRCMPTRUSE-The percent- of adopting the practice in 1977, not the
ages of managerial and non-managerial em- causal effect of adopting the practice by the
ployees who use computers on theirjob capture later period. Overall, then, while our ap-
two potentially different dimensions of com-
proach addresses the problem of inferring
puter use, which has been the subject of consid-
causal effects of work practices in a new
erable investigation in several other studies; the
way, it still has some limitations, although
inclusion of these variables here provides a
point of comparison with those other studies.
in our view the advantages far outweigh the
Further, many observers believe that computer disadvantages.
use is a signal or proxy for organizations that are
more advanced in their operations.
The Emergence of
"High-Performance" Work Systems
Causality
The central assumption on which our
We may have difficulty identifying the empirical approach is based is that the
causal effect of the introduction of work relevant work practices observed in the 1994
Table 1. Descriptive Statistics and Variable Descriptions for

Work Practice Variables in 1994 and 1997 NES, Manufacturing Plants.
1977- 1977-
1993, 1996, 1993 1996
Maximum Maximum Panel, Panel,
Obs. Obs. 1993 1996 Variable Description
Variable Name (1) (2) (3) (4) (5)
MGRCMPTRUSE 66.35 74.24 66.80 72.77 What percentage of your managers and
(37.37) (34.56) (35.74) (34.42) supervisors use computers in their jobs?
WKRCMPTRUSE 25.13 28.14 26.72 27.38 What percentage of your production and
(31.28) (32.08) (30.87) (30.62) non-supervisory employees use computers
in their jobs? 1997: Substitute percent for
percentage.
BENCHMRKG .24 .22 .27 .21 Has your establishment participated in any
benchmarking programs that compare
practices and performances with other
organizations?
MEET 40.42 49.44 36.33 43.81 What percentage of non-managerial and

(42.48) (43.70) (40.66) (43.54) non-supervisory workers are involved in
regularly scheduled meetings to discuss
work-related problems? 1997: What
percent of, or how many, ...
JOBROT 17.23 24.73 14.91 21.12 What percentage of non-managerial and

(30.69) (34.59) (27.43) (31.48) non-supervisory employees are currently
involved in job rotation? 1997: What
percent of, or how many, ...
SELFMNG 12.10 16.55 8.52 12.39 What percentage of non-managerial and

(25.83) (31.37) (22.82) (26.64) non-supervisory employees are currently
involved in self-managed teams? 1997:
What percent, or how many, ...
TQM .42 - .41 Has your establishment adopted a formal

Total Quality Management program?
Does your establishment pay for or

provide:
CROssTRN .69 .66 - Cross-training?
TEAMWORKTRN .52 .45 Teamwork or problem-solving training?
PAYSKILL 21.88 22.58 What percentage of your employees receive

(34.44) (35.80) pay for skill or pay for knowledge?
Does your company have a profit-
bonus, or gain-sharing plan for an
following categories or workers (y
PROFITSHAR .59 .61 Technical/technical support, office/
clerical/sales/customer service, or
production? Constructed variable: plan
for at least one of these three non-
management, non-supervisory occupational
groups.
N 1,528- 2,137-
1,716 2,365 433 666
For continuous variables, standard deviations are shown in parentheses in columns (1)-(4). In columns (3)
and (4), samples are restricted to observations with all data used in regressions available in the corresponding
year. All estimates are weighted. The language in the 1994 and 1997 NES's is identical unless otherwise noted.
"Yes" responses are coded as ones, and "No" responses as zeroes.
and 1997 NES's were introduced sometime was in 1974 (O'Toole 1974), and the first
after 1977. Because this assumption is cru- arguments for redesigning work through
cial to our empirical approach, we describe employee involvement to improve produc-
in detail the evidence for it in this section. tivity appeared about three years later (see,
Despite the great outpouring of research for example, Cummings and Malloy 1977).
over time on the topic of transformed or With the exception of a few well-publicized
"high-performance" work systems, there is cases in the union sector (where involve-
little evidence that the concept had much ment tended to be through union institu-
influence on industry through the 1970s. tions rather than through individuals or
Several studies have attempted to under- teams), interest in reforming work prac-
stand why the academic interest did not tices along these lines made little headway
translate into practice (see, especially, as employers confronted the more immedi-
Bailey 1992; but also Pfeffer 1994, 1998). ate problems of recessions in 1973-75 and
The human relations movement under way 1980.
following the Western Electric studies The interest among employers in high-
(Roethlisberger and Dickson 1943) in prac- performance work systems and employee
tice never embraced employee involvement involvement more generally in the United
or fundamental reform of scientific man- States began in earnest following the rise of
agement principles, focusing instead on Japanese imports in manufacturing and in
paternalism and corporate communications response to conclusions that U.S. manufac-
in what many saw as cynical attempts to turers eventually drew about the apparent
create a facade of corporate interest in superiority of Japanese management prac-
employee welfare (see, for example, Dubin tices. The most important concepts injapa-
1958 for a description of the human rela- nese manufacturing management as they
tions approach). This movement died with relate to work organization are TQM, qual-
the widespread institutionalization of in- ity circles, and job rotation."6 U.S. employ-
dustrial unionism in the 1950s. The ers' and observers' interest in Japanese
sociotechnical studies (for example, Trist management practices lagged almost a de-
1981) had considerable influence in Swed- cade behind the rise of Japanese import
ish industry but essentially none in U.S. penetration. The popular books exposing
industry. the apparent advantages ofJapanese prac-
The psychology-based studies of job de- tices did not appear until the 1980s (see,
sign that began to be popular in the 1970s for example, Ouchi 1982; Pascal and Amos
were virtually all researcher-led experiments 1982). In the automobile industry, where
done on small subgroups of workers. One Japanese success was most immediate, evi-
of the few examples in which an entire dence indicates that U.S. companies did
facility adopted some of these job design not begin any serious attempts to learn
concepts was the Gaines Dog Food plant in from Japanese practices until well into the
Topeka, Kansas, an experiment in the late 1980s. Indeed, it was not until Toyota
1970s that was studied so often that the began operating the New United Motors
researchers threatened to overwhelm the Manufacturing, Inc. (NUMMI) facility with
facility (see Walton 1982). Interest in qual- General Motors in 1985 that U.S. auto mak-
ity-of-worklife programs-essentially em- ers began to believe thatJapanese practices
ployees' involvement in decisions concern-
ing the conditions of the workplace that
affect them (but not job tasks or work sys-
tems) -developed in the 1970s in response
to concerns about poor morale that, in M6Quality circles were meetings of production work-
ers off-line to think of ways to improve quality. They
turn, may have contributed to declining
were not teams, however, in that they had no collec-
productivity. The first widely published tive tasks to perform. They were directed by manage-
material examining whether poor work ment and had no autonomy in decision-making (see
practices were contributing to low morale Hill 1991).
would work in the United States (see sharing). Again, these figures simply mean
Womack et al. 1990). Most observers see that the firm had the practice somewhere
Japanese-inspired work practices then in its organization.
spreading from autos to other manufactur- A 1986 survey of 7,765 business units
ing and, subsequently, elsewhere (see, for (albeit with a response rate of only 6.5%)
example, Kenny and Florida 1993). sponsored by the U.S. Department of La-
Survey data on the introduction of these bor found that roughly 2% of these units
innovative practices might be more persua- had work groups that were allowed to man-
sive than a narrative account of their rise. age themselves, about 2% had gain-sharing
But there are important caveats to the sur- (nearly 3% had profit-sharing), and roughly
vey evidence. First, surveys typically do not 3% had some form of employee involve-
even take place until there is already enough ment in decision-making someplace in their
awareness of practices to make the results operations (Delaney et al. 1989). Surveys
of interest. In this case, the first survey conducted for the U.S. General Account-
examining the incidence of transformed ing Office (GAO) of the 1,000 largest firms
work practices in the economy took place in the United States in terms of sales (the
in 1982. Second, the early surveys in par- Fortune 1,000) in 1987 and 1990 show some-
ticular rarely had representative samples thing about the diffusion of these practices
(see below). Third, because the surveys both over time and within firms. With
sampled firms, rather than workplaces or respect to self-managed work teams, for
establishments, and asked about whether example, the percentage of companies with
practices existed, rather than about their these teams at least somewhere in their
coverage, it is difficult to gauge the true organizations rose from 28% to 47% over
extent of these practices. In such surveys, a this period. The higher incidence found by
company like General Motors with 500,000 these surveys than by the earlier ones may
employees would be asked whether it had simply reflect the enormous scale of these
pay-for-skill, and the company would have large firms compared to the smaller aver-
to give a yes-or-no answer about the com- age size in the previous surveys. In neither
pany as a whole. Use of the work practice period did more than 1 % of these compa-
anywhere in the company could lead to a nies have 40% or more of their employees
"yes" response even if coverage was ex- in such teams. These surveys also appear to
tremely low. Having stated these caveats, be the first to ask about pay-for-skill. The
we next present a review of survey data on percentage of firms with pay-for-skill some-
the introduction of these practices. where in their organization was 60% in
The first survey that asked employers 1987, but then declined to 51% by 1990
about transformed work practices appears (Lawler et al. 1992).
to have been in 1982, sponsored by the New There are a number of other employer
York Stock Exchange (NYSE Office of Re- surveys examining various work practices
search 1982). It sampled firms with more since the late 1980s, and there is consider-
than 100 employees, with a response rate of able variance in their reports of the inci-
26%. The survey asked about 17 categories dence of these practices (see, for example,
of practices, including such general ones as Appelbaum and Batt 1994, Appendix A).
having formal training programs, with the Overall, however, the surveys seem to sug-
response choices being "yes" or "no." Of gest considerable expansion of these prac-
the firms surveyed, 85% had none of the 17 tices during the early 1990s. Osterman's
practices being considered, including the 1992 national probability sample of manu-
very general items like formal training. With facturing establishments (with approxi-
respect to specific practices relating to trans- mately a 50% response rate), for example,
formed work systems, approximately 2% found that one-third of establishments had
hadjob rotation, 2% had production teams, TQM programs, 40% had self-directed
and less than 1% had group productivity teams, and 26% had job rotation for their
payments (although roughly 4% had profit- "core " employees (Osterman 1994). Our
data for 1993, in Table 1, indicate slightly when in fact they were seen as quite revolu-
higher levels of TQM. Ourjob rotation and tionary after they appeared. Finally, recall
self-managed team questions ask about the that even when surveys first asked about the
percentage of employees covered, rather incidence of these practices, well after the
than simply whether the establishment has concepts were introduced, they were quite
them. Comparison of our 1993 and 1996 rare.
data suggests growth in these practices Thus, based on this array of evidence, we
across all of the work organization vari- are comfortable using establishment obser-
ables. This is true whether we compare the vations from the late 1970s to measure per-
data available in our two long panels (col- formance in the absence of high-perfor-
umns 3 and 4), or simply use the maximum mance work practices. Correspondingly,
number of observations on each work prac- we believe that the high incidence of these
tice variable from the two cross-sections practices in 1993 and 1996 as reflected by
(columns 1 and 2); in both cases, however, the NES data generally indicates the true
the samples of establishments in 1993 and incidence of these practices. The following
1996 are different. section describes our empirical analysis that
To summarize the narrative and survey attempts to estimate the effects of these
evidence, the incidence of transformational work practices on organizational perfor-
work practices based on principles of em- mance.
ployee involvement appears to have been
essentially zero as of the late 1970s and very Analyses and Results
low as of the early 1980s. Through the mid-
The dependent variables we study as
1980s, innovations such as job rotation,
outcomes of the implementation of innova-
gain-sharing, and teamwork existed in only
tive work practices are sales per worker,
a small handful of firms, with no evidence
total labor costs per worker, and the ratio of
that they were widespread within those
those two values, or the inverse of unit
firms. The introduction of these practices
labor costs. Because the unit of analysis is
expanded considerably in the early 1990s,
the establishment, and most establishments
however.
are in multi-unit firms, profitability calcula-
Skeptics might argue that establishments
tions pose serious problems.17 In contrast,
had practices in place before 1977 that
sales, receipts, and the value of shipments
looked like some of these high-performance
are comparable measures of overall perfor-
practices even before the terms for them
mance across establishments when controls
became common. However, we also sur-
for industry are included. The alternative
veyed the business press about examples of
dependent variables we study can be inter-
these practices and the first mention of the
preted in terms of what matters most to
terms, and the anecdotal evidence from
different parties in the economy. All else
that survey suggests otherwise. Anecdotal
equal, employees are better off with higher
evidence of innovative work practices like
labor costs per employee, assuming that
those we study is virtually nonexistent in
these costs are compensation-related, as
earlier years, as documented in detail in
the appendix. This is despite the likeli-
hood that firms with such practices would
have had a strong incentive to let the busi-
17Most establishments in multi-establishment firm
ness community know about their practices are simply cost centers, and those that calculate profit-
and secure a reputation for themselves as and-loss estimates do so based on their own internal
innovators, and the business press at the accounting principles, which implies that such esti-
same time was seeking out examples of mates may not be comparable across observations. In
addition, we cannot measure all costs, and it is con-
innovative practices. And if such situations
ceivable that costs associated with implementing inno-
had been at all common, it is difficult to vative work practices are high. Nonetheless, estimates
imagine that the concepts would have re- of profitability have been used for establishment data
ceived much subsequent attention as "new, " such as these (Hellerstein et al. forthcoming).
they are in this case.'8 With regard to using which ought to capture quality. While we
labor, employers gain from higher produc- therefore cannot draw definitive conclu-
tivity, but they also care, of course, about sions regarding profitability, one might
labor costs. It therefore seems most appro- interpret evidence of equal percentage in-
priate to capture benefits to them not only creases in sales per worker and labor costs
in terms of productivity but also in terms of per unit of sales as consistentwith increased
unit labor costs. We use the inverse of unit profitability.
labor costs (that is, output per dollar spent Table 2 reports descriptive statistics for
on labor) as a measure of the efficiency these dependent variables in nominal
with which labor is used,'9 so that a positive terms.21 As "background" information,
effect of a work practice indicates a reduc- Appendix Table A2 reports descriptive sta-
tion in these costs, or a gain to employers.20 tistics for the establishment characteristics
The dependent variables available to us used as control variables, and also explains
pose some limitations. In particular, a com- the definition and construction of these
prehensive, reliable measure of establish- variables based on the NES's. Appendix
mentprofitabilitywould be preferable. The Table A3 reports estimates of the baseline
most tenable maintained assumption is that specifications used without the work prac-
firms maximize profits-and minimizing tice variables. Of most interest, perhaps,
unit labor costs, as opposed to minimizing are the estimates for log sales per worker,
total costs per unit of output (conditional which compare reasonably well with other
on output), is not necessarily implied by production function estimates.
profit maximization. Yet we do not have a In the results that follow, when compar-
full accounting of other, non-labor costs, ing pairs of samples (that is, cross-sectional
and the assignment of all costs and hence and longitudinal) or specifications with
the definition of profitability at the estab- different dependent variables, we restrict
lishment level is elusive in any data set. the sample to the same set of observations
Alternatively, high-performance work prac- across regressions in order to ensure that
tices may entail higher profits via higher any differences in results across specifica-
product quality or greater production flex- tions or across analyses of different vari-
ibility, but also higher unit labor costs. ables cannot be attributed to sample
However, measuring output as physical units
changes. We also estimated median regres-
without any quality adjustment entails a sions to assess the influence of potential
greater risk of erroneous inferences than outliers in the data; the results were very
does measuring output as sales revenue, similar to those presented here. We report
two sets of results: for the 1977-93 panel,
and for the 1977-96 panel.22
18The labor cost measure has three components:

wages and salaries; "Required Supplemental Labor
Costs,"which are government-mandated payroll taxes;
and "Voluntary Supplemental Labor Costs," which 2INatural logs are used in all of the regressions,
are employee benefits. Other costs associated with eliminating any role for purely nominal influences.
labor, such as training and recruiting expenses, are 22We also examined results using the full 1993
not included in this measure. cross-section with additional controls added for work
Of course, work effort may also increase. force characteristics (and other variables), which are
19Note that this does not refer to technical effi- not available in the 1977 LRD (or other years of the
ciency in the economic sense of being on the produc- LRD). This latter speciflcation cannot be used to
tion frontier, but rather efficiency in the sense of address the issue of establishment-level heterogene-
minimizing unit labor costs, ceteris paribus. ity, and hence does not embody our main method-
20We might also consider increases in productivity ological approach, but it does give us independent
as indicating possible benefits to society, with the information about the potential role of work force
important ceterisparibus assumption that this does not characteristics in influencing relationships with es-
come about simply through reducing the labor input tablishment outcomes. As noted earlier, this infor-
and hence driving up labor's marginal product. mation is potentially important because of the possi-
Table 2. Descriptive Statistics and Variable

Descriptions for Measures of Performance, Manufacturing Plants.
1977-1993 Panel 1977-1 996 Panel
1977 1993 1977 1996 Variable Description

Variable Name (1) (2) (3) (4) (9)
SALESVAL 60.31 136.49 57.04 146.36 What was your establishment's total value
(77.15) (139.92) (77.16) (190.91) of sales, receipts, or shipments (gross
revenues, sales, or receipts, in lOOOs) for
calendar year ? Constructed
variable: SALESVAL = sales/ToTWRKRs.
Median ~43 ~102 -41 -109
Interquartile Range 26 86 29 83
LBRCOST 14.38 33.45 13.52 28.35 What was the total labor cost (lOOOs)
(4.31) (12.50) (3.87) (21.13) used in the production of your
sales? (1993 or 1992 data substituted
from LRD) Constructed variable:
LBRCOST = total labor costs / TOTWRKRS.
Median -14 -33 -13 -24
Interquartile range 5 18 5 16
SALESVALLessLBRCOST 1.23 1.24 1.22 1.56 Log(SALESVAL)-Log(LBRCOST)

(.52) (.54) (.57) (.88)
Median -1.18 -1.20 -1.12 -1.43
Interquartile range .60 .59 .66 .83
N 433 433 666 666
See notes to Table 1. The 1994 NES does not include a total labor cost variable; all that is available is the
percentage of the establishment's total cost of production that is accounted for by labor costs. Consequently,
data on labor costs were taken from the 1993 LRD for the same establishments (which covers the same period
as the 1994 NES), or from the 1992 Census of Manufacturers if the establishment did not appear in the 1993
LRD. For data drawn from 1992, the labor cost figure was adjusted upward by the ECI. The denominator
(TOTWRKRS) was drawn from the corresponding data source. Because the 1994 NES survey has limited
information on off-payroll workers (for example, temporaries or contract employees) not covered in the other
data sources, for cases where it was possible to establish that a fraction of workers in the 1994 NES were off-
payroll, TOTWRKRS from the LRD or Census of Manufacturers was adjusted upward by the same fraction. In
computing SALESVALLessLBRCOST, we always used SALESVAL from the NES data. Medians reported in this and
other tables are "fuzzy" medians because of confidentiality requirements. The fuzzy medians are means of the
true weighted median and a set of the 9-14 closest observations on either side, where the true median is given
extra weight while the weights of the surrounding observations are reduced linearly in proportion to their
ranked differences from the median.
Productivity have a common theme of employee in-

volvement, they could tend to occur to-
Table 3 presents regression results relat-
gether in the same establishments and
ing work practices to sales per worker. Es-
present collinearity problems in the em-
pecially because most of the work practices
pirical analysis. Therefore, Panel A reports
results entering a single work practice sepa-
rately, or in conjunction with closely re-
bility that establishments implementing various work lated practices (for example, MGRCMPTRUSE
practices also change the composition of their work and WKRCMPTRUSE), along with the control
force in the process. We did this additional analysis
variables but without any other work prac-
using the 1994 NES because it contains a larger set of
tice variables. (In fact, the estimates tended
questions on work practices. These results are not
reported in this paper, but are available in an earlier to be quite similar, albeit with somewhat
working paper version (Cappelli and Neumark 1999). higher standard errors, when the practices
were entered jointly. These results are statistically significant. Computer use
available on request.) The results for each among workers is also positively associated
related set of such variables are reported in with sales per worker. The estimates are
separate rows (with specifications labeled positive in the two panels, when we differ-
1, 2, 3, and so on). Columns 1 and 3 report ence the data and when we do not, al-
cross-section estimates for the 1993 (col- though the results are statistically signifi-
umn 1) and 1996 (column 3) data that cant only for the 1996 cross-section and the
could be successfully matched to the 1977 1977-96 panel. Thus, while we do not want
LRD. Columns 2 and 4 report the first- to rule out the possibility that many of these
difference estimates using the 1977 data as individual work practices have positive pro-
well. Recall that while the dependent vari- ductivity effects, we do want to emphasize
able and all of the control variables are that there is-in these data-only a weak
differenced, the work practice variables case for such an interpretation.
effectively are not, given the assumption The second half of the table (Panel B)
that these work practices were nonexistent examines potential synergies among the
in 1977. work practice variables. The set of possible
Many of the estimated effects appear combinations of practices that might pro-
positive across many of the alternative esti- vide synergies is very large, and prior re-
mations. These include the effects of com- search, as noted above, is not consistent in
puter use by workers, meetings to discuss the choice of synergies to explore. To
work-related problems, TQM, cross-train- avoid data mining, all of the synergies in
ing and teamwork training, pay-for-skill, the "bundles" we explore were specified a
and profit-sharing. However, the statistical priori, and results are reported for all of
evidence is weak, as the only work practice these, whether statistically significant or
variables showing a relationship with sales not. To keep the list of synergies manage-
per worker at conventional levels of signifi- able, we chose to examine first those prac-
cance are computer use by workers andjob tices that are intentionally designed to re-
rotation, and unlike all of the other work inforce each other. Teamwork training,
practice effects, the estimated effect ofjob for example, is designed to improve perfor-
rotation is negative. Looking across the set mance in teams and should produce greater
of work practice variables, in most cases performance when used in combination
(WKRCMPTRUSE, BENCHMRKG, SELFMNG, with employee meetings and self-managed
TQM, TEAMWORKTRN, PAYSKILL, and teams (specification 13). Cross-training by
PROFITSHAR) the estimated effect in the cross- definition is designed to help teach other
section weakens in the differenced data, job skills used in the workplace and should
although the point estimates usually re- therefore reinforce job rotation, which ro-
main positive. This is consistent with tates employees into other tasks (specifica-
unobservables that are positively related to tion 12).
productivity and are also positively corre- We also examine synergies based on ar-
lated with the adoption of these work prac- guments from existing literature about the
tices, a pattern we might expect. role that compensation mechanisms can
Overall, then, although many of the esti- play in supporting other practices. Profit-
mates are consistent with positive produc- sharing and gain-sharing plans that give
tivity effects, the evidence is weak statisti- employees a financial stake in improved
cally. The evidence is weakened further by performance help create incentives for
its inconsistency across specifications and them to use the opportunities that em-
samples. While the estimated effect ofjob ployee involvement creates to act in the
rotation in the 1993 cross-section (column interests of the organization.23 Therefore
1) is similar to that in the 1996 cross-sec-
tion, the first-difference estimate in col- 23See, for example, Levine and Tyson (1990) for
umn 2 is near zero, while the first-differ- one of many examples of this argument, and Weitzman
ence estimate in column 4 is negative and and Kruse (1990) for evidence.
Table 3. Work Practice OLS Regressions for Log of Sales/Worker, Manufacturing Plants.
1977-1993 Panel 1977-1996 Panel 1977-1993 Panel 1977-1996 Panel
Differ- Differ- Differ- Differ-

1993 enced 1996 enced 1993 enced 1996 enced
Variable (1) (2) (3) (4) Variable (1) (2) (3) (4)
A. Individual Work Practices B. Work Practice Bundles (cont'd)

1. MGRCMPTRUSE/100 -.066 -.068 .047 -.007 TEAMwoRKTRNx -.270 -.287
(.085) (.083) (.072) (.075) SELFMNG (.240) (.244)
WKRCMPTRUSE/100 .126 .067 .174* .116* Main+Interact. Effects: .076 -.019
(.087) (.084) (.068) (.069) P-Value: .340 .804
2. BENCHMRKG .046 -.038 -.013 -.060 14. PAYSKILL -.046 -.111
(.048) (.048) (.039) (.040) (.125) (.122)
3. MEET//100 .070 .040 .056 .058 MEET .046 -.010
(.057) (.056) (.044) (.046) (.067) (.066)
4. JoBRoT/100 -.092 .004 -.105* -.124* JOBROT -.058 .036
(.086) (.085) (.059) (.062) (.100) (.099)
5. SELFMNG/100 .022 -.058 .002 -.006 SELFMNG -.115 -.176
(.097) (.097) (.066) (.070) (.122) (.123)
6. TQM .040 .030 PAYSKILLXMEET .109 .314
(.050) (.048) (.198) (.199)
7. CRossTRN .032 .032 Main+Interact. Effects: .022 .011
(.056) (.056) P-Value: .641 .742
8. TEAMWoRKTRN .084 .026 PAYSKILLXJOBROT -.261 -.146
(.057) (.054) (.327) (.327)
9. PAYSKILL/100 .054 .051 Main+Interact. Effects: -.077 -.062
(.080) (.079) P-Value: .226 .325
10. PROFITSHAR .062 -.021 PAYSKILLXSELFMNG .447 .248
(.048) (.048) (.296) (.300)
B. Work Practice Bundles Main+Interact. Effects: .024 -.076
11. JOBROT -.064 .056 -.207 -.194* P-Value: .785 .393
(.097) (.097) (.070) (.074) 15. PROFITSHAR .090 -.040
SELFMNG .093 .015 -.129 -.085 (.064) (.065)
(.123) (.123) (.088) (.093) TQM .097 .017
JOBROT/100 -.200 -.275 .491* .338* (.073) (.072)
SELFMNG (.269) (.271) (.184) (.196) MEET .063 .094
Main+Interact. (.089) (.089)
Effects: -.005 -.004 -.055 -.055 SELFMNG -.294 -.479*
P-Value: .889 .924 .101 .119 (.181) (.182)
12. CRossTRN -.005 .015 PROFITSHARxTQM -.135 .024
(.062) (.063) (.098) (.098)
JOBROT -.294* -.084 Main + Interact. Effects: .052 .000
(.163) (.165) P-Value: .521 .999
CROssTRNXJOBROT .276 .118 PROFITSHARXMEET -.000 -.102
(.191) (.194) (.123) (.124)
Main+Interact. Main+Interact. Effects: .122* -.045
Effects: -.010 .026 P-Value: .079 .517
P-Value: .872 .681 PROFITSHARXSELFMNG .431* .626*
13. TFAMwoRKTRN .101 .033 (.238) (.239)
(.072) (.071) Main+Interact. Effects: .151* .025
MEET .083 .029 P-Value: .083 .775
(.125) (.126) 16. Summed z-Scores for .005 .003 -.002 -.004
SELFMNG .201 .145 SELFMNG, MEET,JOBROT, (.010) (.010) (.009) (.009)
(.211) (.216) andTQM (in 1993)
TEAMwoRKTRNXMEET -.038 .023 N 433 433 666 666
(.142) (.144)
Main+Interact.
Effects: .126** .062
P-Value: .056 .325
Each numbered set of work practice variables was entered separately. The other control variables included are production
function inputs, establishment age (for 1993 only), and dummy variables for two-digit industries, whether the plant belongs
to a multi-plant firm, and whether in the 1993 data the labor cost and employment data came from the 1992 LRD. Descriptive
statistics for these variables are reported in Appendix Table A2, and estimated coefficients of these variables for the
specifications corresponding to those in this table and Tables 4 and 5, but excluding the work practice variables, are reported
in Appendix Table A3. In Panel B, the "/100" is omitted from the variable name, although these variables (MEET, JOBROT,
SELFMNG, and PAYSKILL) are always divided by 100. Below the estimated interactive coefficients, the table reports the sum of the
main and interactive effects, evaluated at sample means of work practice variables conditional on each practice in the set of
practices under consideration being greater than zero, with means treated as fixed. The p-value is from the Wald statistic of
the null hypothesis that this linear combination of the regression coefficients equals zero.
*Statistically significant at the .10 level; **at the .05 level (two-sided tests).
we might expect to see positive synergies catively (hence testing for interactive ef-
between these plans and employee-involve- fects) or additively. We believe that the
ment practices-TQM, employee meetings, hypothesis of synergies implies that we
and self-managed work teams (specifica- should test for interactive effects, as the
tion 15). Similar arguments apply to pay- synergy argument is that the effects of sub-
for-skill plans that support learning new sets of work practices are greater when they
workplace skills, which should be especially are implemented jointly. MacDuffie's
useful in situations wherejobs are broader- counter-argument is that a multiplicative
job rotation, self-managed teams, and em- specification implies that if one work prac-
ployee meetings (specification 14). The tice is not present, the others have no effect
final synergy we examine is between job (p. 204). However, as long as the main
rotation and self-managed teams (specifi- effects are entered along with the interac-
cation 11), reflecting the hypotheses that tive effect, this criticism does not apply. A
self-managed teams can work more effec- specification that includes the percentage
tively when employees are able to rotate to involved in work practice A (%A) and the
the tasks that need doing and thatjob rota- percentage involved in work practice B
tion is more useful when employees can (%B) (the "main effects"), and the interac-
control, through self-management, when tion (%A x %B) still, of course, allows for
and where to move. effects of work practices introduced in iso-
We note that a subset of practices about lation. Conversely, if the main effects are
which information is gathered in the NES not introduced, we cannot be sure whether
overlaps considerably with practices stud- the interactive effect is detecting a synergy
ied by MacDuffie (1995), although he also orjust an omitted effect of individual work
considered the role of the production sys- practices. Thus, we generally use multipli-
tem (buffers vs. flexible production) in the cative specifications (see below).
same analysis. MacDuffie grouped human Of course, once a bundle includes more
resource practices into two broad bundles. than two practices, and especially if it in-
One, which he referred to as "human re- cludes more than three, an unrestricted
source management" policies, includes in- multiplicative specification entails a very
novative policies regarding recruitment and large number of coefficients to account for
hiring, contingent compensation, status all of the possible interactions. In many
differentiation among workers, training of cases, there are predictions that restrict the
new employees, and training of experienced number of interactions in which we are
employees. Among these, we really only interested. For example, note that in the
have data on contingent compensation. The discussion above regarding specifications
other, however, which he labeled "work 13, 14, and 15-which involved more than
systems," includes the following practices: two work practices-the predicted synergy
work teams; problem-solving groups; em- is between one particular practice and the
ployee suggestions made and implemented; others. To take a particular case, in the
job rotation; and decentralization of qual- discussion of specification 13, the hypoth-
ity-related tasks. As a set, these correspond esis is that there are interactive effects be-
quite closely to the four work practice mea- tween teamwork training and employee
sures of SELFMNG, MEET (covering problem- meetings and between teamwork training
solving groups and employee suggestions), and self-managed teams. Thus, in our in-
JOBROT, and TQM. We therefore consider teractive specifications we are led to use
a final bundle consisting of these four work only two-way interactions. However, be-
practices, which corresponds to MacDuffie's cause MacDuffie did not specify which in-
"work systems" set of practices (specifica- teractions among the practices he included
tion 16). in "work systems" are potentially impor-
Another issue that arises in looking at tant, and because we are to some extent
synergies is whether we should be combin- interested in seeing whether his results are
ing information on work practices multipli- replicated in our data, in the case of speci-
fication 16 we adopt MacDuffie's additive idea underlying this choice is that these
approach, constructing a single variable conditional means provide the best empiri-
that is the sum of the z-scores of the work cal representation of how these sets of prac-
practice variables. tices are implemented in those establish-
Including the interactions between the ments using the bundle of practices under
work practice variables leads to more evi- consideration.24 The results are reported
dence of statistically significant main ef- underneath the interactive coefficients.25
fects on sales per worker. In specification When we do this, the evidence of the
11,job rotation is negatively related to sales effects of these bundles of work practices
per worker in both of the 1977-96 specifi- becomes weaker. In particular, once we
cations. Its interaction with self-managed combine the main and interactive effects, it
teams, however, is positive (although statis- becomes apparent that thejoint implemen-
tically significant only at the 10% level in tation of work practices whose interactive
the longitudinal estimation), suggesting coefficient is positive need not be positive.
that these practices must be used in tandem Specifically, in specification 11, which uses
to reap productivity benefits. The results the 1996 data sets, the combined main and
for specification 13 in column 1 point to interactive effects at the conditional means
positive effects from combining meetings are negative (-.055 in both the cross-sec-
and teamwork training, although we do not tion and longitudinal estimations). On the
get consistent evidence in any of the other other hand, in specification 15 some evi-
columns. Specifications 14 and 15 yield dence of beneficial effects of introducing
more consistent results, most notably nega- profit-sharing along with self-managed
tive effects of self-managed teams in isolation teams remains. In column 1 the estimated
but positive effects when they are combined effect is .151, significant at the 10% level.
with pay-for-skill (specification 14) and profit- Note, however, that this particular estimate
sharing (specification 15). In specification is considerably smaller in the longitudinal
15, in particular, these results are rather estimation, raising some doubts about a
strong, and are robust across the alternative causal interpretation. These results indi-
cross-section and fixed-effects estimates. cate that we have to distinguish between
To assess the total effects of these work pure interaction effects-which is presum-
practice bundles, however, we have to take ablywhat people mean by "synergies"-and
account of both the main and the interac- the effects of implementing "bundles" of
tive effects. Because these results generally work practices. In particular, an interac-
go in opposite directions (for example, tive effect may indicate that implementing
self-managed teams and its interaction with practice A in conjunction with practice B is
profit-sharing, in specification 15), the in- better than introducing practice A in isola-
teractive effects likely overstate the gains. tion (a positive synergy), but this does not
The table also reports, therefore, the effect necessarily mean that the joint implemen-
on sales per worker of implementing each
of the pairs of practices hypothesized to
create synergies, including both the main 24In principle, there could be an even higher level
effects and the interactive effects. Because of intensity of use of these practices at which the
the interactions introduce non-linearities, effects become positive. However, in an earlier ver-
sion of this paper we evaluated the main plus interac-
this requires choosing a level of implemen-
tive effects at 100% implementation (that is, 100% of
tation at which to evaluate the estimated workers participating), and still failed to find positive
effects. For the practices identified by a and statistically significant effects. One problem with
discrete indicator, we simply set the indica- this analysis is that it entails using the regression
tor to one. For those measured in terms of results to forecast the dependent variable well out of
the observed range of the right-hand-side variables.
the percentage of employees involved, we
25For the longitudinal estimates, we still use the
use the mean percentage conditional on means in levels, to interpret the regression coeffi-
each practice in the set of practices under cients in a parallel fashion to the cross-section esti-
consideration being greater than zero; the mates.
tation of the bundle of work practices A tent in the cross-section and first-
and B is beneficial on net. Finally, specifi- differenced estimates, although less so
cation 16 reports results for the summed z- across samples.
scores for the four work practices in In the analysis of synergies in Panel B,
MacDuffie's "work systems" cluster. As the there is not consistent evidence of statisti-
estimates indicate, these specifications pro- cally significant effects of bundles of work
vide no evidence of productivity effects. practices. In specification 11, the signs of
Summarizing, the results for productiv- the estimated effects ofjointly implement-
ity suggest that while there is some evi- ing job rotation and self-managed teams
dence of possible positive synergies between are different across samples (but-not across
profit-sharing and self-managed teams, estimators). In specifications 13 and 15,
there is relatively little consistent, statisti- there is some evidence of positive effects of
cally significant evidence of beneficial pro- joint implementation of pairs or bundles of
ductivity effects of these work practices. work practices in the 1993 cross-section,
Many of the estimated main effects in Panel but these become smaller and statistically
A are positive, suggesting beneficial effects, insignificant in the longitudinal estimation.
but with the exception of computer use by Overall, then, the results in Table 4 sug-
workers,26 none of these are statistically gest that a number of the high-performance
significant. This indicates at best a weak work practices we study raise labor costs per
empirical case for productivity gains, al- worker. Because compensation accounts
though we do not rule out such gains based for virtually all labor costs, these results are
on our findings. Further emphasizing the consistent with high-performance work
fragility of the statistical evidence, some of practices raising average compensation of
the stronger effects are not robust across employees. In addition, unreported re-
years of the NES. Finally, first differencing sults using the full 1993 cross-section (avail-
the data to remove biases from heterogene- able on request) support this conclusion
ity sometimes moves estimated positive ef- even when we add the available measures of
fects on productivity toward zero. As noted worker quality (average education and ten-
below, this tends to occur for labor costs as ure, union status, percentage of women
well, suggesting that heterogeneity bias is a and minorities). These results imply that
concern in the estimation of effects of work high-performance work practices appear
practices, which in turn would imply a need to raise the average compensation of other-
for circumspection in interpreting results wise equivalent employees, rather thanjust
from cross-sectional data sets. causing a shift to higher-quality workers.
Finally, Table 4 provides little compelling
Labor Costs evidence of synergies between practices in
their effects on labor costs per worker, and
Table 4 presents results of exactly the
certainly no evidence that synergies reduce
same analyses, except that this time we use
labor costs.27
log-labor costs per worker as the dependent
variable. In Panel A, many more of the
27In recent research relying on cross-sectional varia-
work practice variables have statistically sig-
tion in the use of high-performance work practices,
nificant relationships with the dependent Handel and Gittleman (1999), using the U.S. Bureau
variable. The statistically significant effects of Labor Statistics' 1995 Survey of Employer-Provided
(for computer use by workers, bench-mark- Training (SEPT95), found weaker evidence of posi-
ing, meetings, TQM, team training, and tive effects of work practices on wages, although a
couple of their estimates do point in this direction.
profit-sharing) are positive, suggesting that
Osterman (2000) failed to find evidence that high-
these practices raise labor costs. Moreover, performance work practices were associated with
these estimates are generally quite consis- higher compensation growth in later years; if these
practices were associated mainly with an upward shift
in the level of compensation (rather than a faster
26This is also the one consistent finding in Black growth rate of compensation), these results are not
and Lynch (1997). inconsistent with ours.
Table 4. Work Practice OLS Regressions for Log of Labor Costs/Worker, Manufacturing Plants.
1977-1993 Panel 1977-1996 Panel 1977-1993 Panel 1977-1996 Panel
Differ- Differ- Differ- Differ-

1993 enced 1996 enced 1993 enced 1996 enced
Variable (1) (2) (3) (4) Variable (1) (2) (3) (4)
A. Individual Work Practices B. Work Practice Bundles (Cont'd)

1. MGRCMPTRUSE/100 .029 .031 -.015 -.002 TEAMWORKTRNXSELFMNG .136 .113
(.051) (.043) (.104) (.099) (.144) (.125)
WKRCMPTRUSE/100 .193** .014 .128 .145 Main+Interact.Effects: .084* .036
(.051) (.043) (.097) (.091) P-Value: .076 .373
2. BENCHMRKG .102" .070" .041 .048 14. PAYSKiLL -.019 -.059
(.029) (.024) (.056) (.053) (.076) (.063)
3. MEET/100 .040 .004 .102 .132" MEET .054 .010
(.035) (.029) (.063) (.060) (.041) (.034)
4. JOBRoT/100 -.053 .017 -.091 -.104 JOBROT -.111' -.016
(.052) (.044) (.084) (.081) (.061) (.051)
5. SELFMNG/100 .065 -.033 -.006 -.029 SELFMNG .084 -.008
(.059) (.050) (.095) (.092) (.074) (.063)
6. TQM .093" .059" PAYSKILIXMEET -.073 .014
(.030) (.025) (.120) (.102)
7. CROSSTRN .010 -.003 Main+Interact.Effects: -.002 -.023
(.034) (.029) P-Value: .968 .461
8. TEAMWORKTRN .094" .046' PAYSKILLXJOBROT .268 .228
(.034) (.028) (.198) (.168)
9. PAYSKILL/100 -.013 -.045 Main+Interact.Effects: -.004 .001
(.049) (.041) P-Value: .908 .987
10. PROFITSHAR .058" .021 PAYSKILLXSELFMNG -.063 -.119
(.029) (.024) (.179) (.155)
Main+Interact.Effects: .006 -.061
B. Work Practice Bundles P-Value: .908 .179
li.JOBRoT -.013 .069 -.159 -.201" 15. PROFITSHAR .042 .011
(.058) (.049) (.101) (.097) (.038) (.033)
SELFMNG .159" .043 -.091 -.162 TQM .110" .085"
(.074) (.063) (.127) (.123) (.044) (.037)
JOBROTXSELFMNG -.304' -.292" .328 .496' MEET -.041 -.035
(.162) (.139) (.265) (.258) (.053) (.046)
Main+Interact.Effects: .020 .007 -.046 -.065 SELFMNG .080 -.144
P-Value: .375 .716 .341 .162 (.109) (.093)
12. CRossTRN .047 -.006 PROFITSHARxTQM -.048 -.039
(.038) (.032) (.059) (.051)
JOBRoT -.084 .003 Main+Interact.Effects: .104* .056
(.099) (.085) P-Value: .032 .167
CRossTRNXJOBROT .043 .020 PROFITSHARXMEET .106 .050
(.116) (.100) (.074) (.063)
Main+Interact.Effects:-.008 .001 Main+Interact.Effects: .074* .018
P-Value: .837 .978 P-Value: .072 .612
13. TEAMwORKTRN .057 .042 PROFITSHARXSELFMNG -.092 .131
(.043) (.036) (.143) (.123)
MEET -.053 -.010 Main+Interact.Effects: .036 .005
(.075) (.064) P-Value: .490 .920
SELFMNG -.060 -.131 16. Summed z-Scores for .011' .004 .003 .004
(.127) (.111) SELFMNG, MEET, (.006) (.005) (.013) (.012)
TEAMWORKTRNXMEET .078 .002 JOBRoT,and TQM
(.085) (.074) (in 1993)
Main+Interac.Effects: .071* .038 N 433 433 666 666
P-Value: .072 .243
See notes to Table 3.
Unit Labor Costs per worker (or the log of the inverse of unit
labor costs) as the dependent variable. This
Table 5 reports the results from repeat- table effectively combines the two previous
ing the above analyses, but using the log of analyses, or, perhaps more accurately, ex-
the ratio of sales per worker to labor costs amines the effects of work practices on
Table 5. Work Practice OLS Regressions for Inverse of Unit Labor Costs
(Log of Sales/Worker-Log Labor Costs/Worker), Manufacturing Plants
1977-1993 Panel 1977-1996 Panel
SW/LC 1993 Differenced SW/LC 1996 Differenced
Work Practice Variables (1) (2) (3) (4) (5) (6)
A. Individual Work Practices

1. MGRCMPTRUSE/100 -.094 -.099 .061 -.005
(.081) (.083) (.106) (.104)
WKRCMPTR USE/I00 +/+ -.068 .053 +/+ .046 -.029
(.082) (.085) (.100) (.096)
2. BENCHMRKG ?/+ -.056 -.108* -.054 -.108*
(.046) (.048) (.057) (.056)
3. MEET/1 00 .030 .036 +/+ -.046 -.075
(.054) (.056) (.065) (.064)
4. JoBROT/1OO -.039 -.013 -7- -.013 -.019
(.081) (.085) (.086) (.085)
5. SELFMNG/ 1 00 -.043 -.025 .009 .023
(.092) (.098) (.097) (.097)
6. TQM ?/+ -.053 -.030
(.048) (.048)
7. CROSSTRN .022 .035
(.053) (.056)
8. TEAMWORK TRN +/+ -.010 -.021

(.054) (.055)
9. PAYSKILL/100 .067 .097
(.076) (.079)
10.PROFITSSHAR +/+ .005 -.042
(.045) (.048)
B. Work Practice Bundles

11.JOBROT -.051 -.013 -7- -.048 .008
(.092) (.097) (.103) (.102)
SELFMNG ?/+ -.066 -.028 -.039 .077
(.117) (.123) (.130) (.130)
JOBROTXSELFMNG -7- .103 .018 +/+ .162 -.158
(.255) (.273) (.271) (.272)
Main + Interactive Effects: -.026 -.011 -7- -.009 .010
P-Value: .477 .780 .858 .837
12.CROssTRN -.009 .021
(.059) (.063)
JOBROT -7? -.209 -.086
(.154) (.166)
CROSSTRNXJOBROT .233 .099
(.180) (.195)
Main + Interactive Effects: -.002 .025
P-Value: .970 .693
13.TEAMWORKTRN .044 -.010
(.068) (.071)
MEET .136 .039
(.118) (.126)
SELFMNG .262 .276
(.199) (.216)
TEAMWORKXMEET -.117 .021
(.134) (.144)
MAIN + INTERACTIVE EFFECTS: +/+ .055 .024
P-Value: .376 .702
TEAMWORKTRNXSELFMNG -.406* -.400
(.226) (.245)
Continued
Table 5. Continued.
1977-1 993 Panel 1977-1996 Panel
SW/LC 1993 Differenced SW/LC 1996 Differenced
B. Work Practice Bundles (cont'd)

MmN + INTERACTIVE EFFECTS: ?/+ -.009 -.055
P-Value: .906 .481
14.PAYSKILL -.027 -.052
(.118) (.122)
MEET -.009 -.020
(.063) (.066)
JOBROT ?/- .053 .052
(.095) (.100)
SELFMNG -.199* -.168
(.115) (.123)
PAYSKILLXMEET .183 .300
(.186) (.199)
Main + Interactive Effects: ?/- .025 .034
P-Value: .603 .479
PAYSKILLXJOBROT -.529* -.375
(.309) (.327)
Main + Interactive Effects: -/? -.073 -.062
P-Value: .226 .321
PAYSKILLXSELFMNG .510* .367
(.279) (.301)
Main + Interactive Effects: .018 -.014
P-Value: .830 .872
15.PROFITSHAR .048 -.051
(.061) (.065)
TQM +/+ -.014 -.068
(.069) (.072)
MEET .104 .129
(.084) (.090)
SELFMNG -/- -.373* -.335*
(.171) (.183)
PROFITSHARXTQM -.086 .063
(.092) (.099)
MAIN + INTERACTIVE EFFECTS: ?/+ -.052 -.057
P-Value: .494 .481
PROFITSHARXMEET -.106 -.152
(.116) (.124)
MAN + INTERACTIvE EFFECTS: +/+ .047 -.062
P-Value: .469 .366
PROFIT SHAR XSELFMNG +/+ .523* .495*
(.225) (.240)
MmN + INTERACTIVE EFFECTS: +/? .115 .021
P-Value: .162 .816
16. SUMMED Z-SCORES for
SELFMNG, MEET, JOBROT, and ?/+ -.006 -.001 -.005 -.007
TQM (in 1993) (.009) (.010) (.013) (.013)
N 433 433 666 666
See notes to Table 3. Variables for which there were statistically significant effects of work practices (at the
10% level or better) in Tables 3 and 4 are highlighted. In columns (1) and (4), for these highlighted variables,
and the samples in which there was a statistically significant effect (at the 10% level), the signs of the estimated
effects on sales/worker (SW) or labor costs/worker (LC) from the cross-section and differenced estimates are
indicated if they can be established based on t-statistics exceeding one (or, for the tests of main and interactive
effects, a p-value less than .318, corresponding to the p-value for a t-statistic of one); a "?" is reported if either
the sign cannot be established or there are both positive and negative estimates with t-values exceeding one
(otherwise the sign of the coefficient estimate with the t-value exceeding one is reported).
labor efficiency. For example, a positive 4 revealed at least marginally statistically

effect in this equation implies that produc- significant positive effects on worker pro-
tivity rises more than labor costs per worker, ductivity or labor costs per worker that
which lowers unit labor costs (increasing survive the longitudinal estimation-spe-
the efficiency of employers' expenditures cifically, benchmarking (BENCHMRKG),
on labor). More specifically, the depen- meetings (MEET), TQM, and teamwork
dent variables in all of the equations we training (TEAMWORKTRN). For meetings,
estimate are expressed in natural logs. With the 1977-96 longitudinal estimates in Table
sales per worker and labor costs per worker 4 indicate a positive impact of meetings of
expressed in logs, the regression of the log 13.2%. Given the log specification and
of the ratio of these variables (equivalent to definition of variables, the .132 estimate in
the difference of logs) produces precisely column 4 measures the impact on log labor
the difference between the coefficients in costs per worker of going from no workers
the separate regressions for each indepen- involved in meetings to 100% involvement
dent variable. Running the regression for (13.2%), so a ten percentage point increase
this difference in logs permits us to easily in workers involved in meetings would boost
read off the statistical significance of the labor costs by 1.32%. Looking at the pro-
differential effects on productivity and la- ductivity results in Table 3, the correspond-
bor costs. ing estimate is 5.8% (smaller, but positive).
To aid in interpreting the evidence, a The estimate reported in Table 5 for this
summary of the corresponding results from variable and specification (-7.5%) is sim-
Tables 3 and 4 is also provided. Specifi- ply the difference between the effects on
cally, the variables (or combinations of main labor costs and on productivity and is not
and interactive effects) identified in bold statistically significant.
italics are those that had statistically signifi- Similarly, looking at column 2 in the
cant relationships with either sales per preceding tables, TQM boosts labor costs
worker or labor costs per worker in at least by 5.9% (since TQM is a discrete indicator,
one of the estimations in Tables 3 or 4. this simply measures the effect of its imple-
When this was the case, for samples in mentation) and productivity (insignifi-
which there was a statistically significant cantly) by 3.0%, resulting in a small and
effect, the signs of the effects on sales per statistically insignificant estimate in Table
worker (SALESPERWKR) and labor costs per 5 (-3.0%) of the difference between them,
worker (LBRCOSTSPERWKR) are also indi- while for teamwork training, the corre-
cated, whenever these could be reasonably sponding estimates are 4.6% for labor costs,
determined. These sign "determinations" 2.6% for productivity, and -2.1% for the
are based on whether t-statistics exceeded inverse of unit labor costs. In the cross-
one with consistent signs of the estimates.28 sectional estimates, this pattern of roughly
The empirical results we see in Panel A offsetting effects on productivity and labor
of Table 5 are, by and large, consistent with costs is more apparent, as the estimates in
offsetting relationships. In over a third of column 1 of Tables 3 and 4 indicate that
the cases, the signs of the effects on both teamwork training boosts labor costs by
productivity and labor costs are positive, in 9.4%, and productivity by 8.4%. Yet, for
a few additional cases the signs are both none of these variables do the regression
negative, and in no case is there evidence of coefficients reported in Table 5 indicate an
a work practice or bundle that moves pro- effect on the inverse of unit labor costs,
ductivity and labor costs in opposite direc- which measures the difference between the
tions. labor cost and productivity coefficients. The
To see this more explicitly, consider the conclusions are similar regarding the prac-
four work practices for which Tables 3 and tices that appear to reduce both productiv-
ity and labor costs (job rotation, and per-
haps job rotation coupled with self-man-
28The notes to the table provide more details. aged teams).
Thus, the evidence suggests that a num- Conclusions

ber of these work practices raise labor costs
How work might be organized so as to
per worker, but they generally also raise
benefit employees and employers has been
sales per worker by roughly similar amounts,
a central question in social-science through-
resulting in no effect on unit labor costs.
out the past century. The analyses pre-
Note, however, that the productivity results
sented in this paper of the effects of high-
are rarely statistically significant, suggest-
performance work practices in manufac-
ing that the inferences regarding the ef-
turing establishments offer several advan-
fects on labor costs can be made with more
tages over prior efforts to examine the rela-
confidence than the inferences regarding
tionships between innovative work prac-
offsetting effects on productivity.
tices and organizational outcomes. Most
The same general reading of the evi-
important, the longitudinal nature of our
dence is true to a large extent for the inter-
data and the ability it gives us to measure
active specifications in Panel B. The esti-
performance before these innovative work
mated coefficients of the interaction terms
practices were introduced offers an ap-
reveal some similarities between the effects
proach to controlling for heterogeneity
in the labor cost regressions in Table 4 and
that, while not without some potential pit-
the productivity regressions in Table 3. For
falls, improves on prior studies relying on
example, for specification 15, in column 1,
cross-sectional data only or on alternative
jointly implementing profit-sharing and
longitudinal strategies.
TQM is estimated to boost labor costs by
The conclusion most strongly supported
10.4% and productivity by 5.2%, while
by the evidence we obtain is that work prac-
implementing profit-sharing coupled with
tices transferring power to employees, of-
meetings is estimated to boost labor costs
ten described as "high-performance" or
by 7.4% and productivity by 12.2%. For
"high road" practices, raise labor costs per
specification 11, the pattern of coefficients
employee, suggesting that these practices
is very similar (in terms of both sign and
raise employee compensation, which rep-
statistical significance) in the results for
resents a cost to employers. The evidence
productivity and labor costs. For these
is also consistent with these practices rais-
bundles of practices, as a consequence, the
ing productivity (sales per employee), al-
unit labor cost results in Table 5 reveal no
statistically significant effects. On the other
hand, a number of the estimated interac-
tion coefficients are statistically significant A4. This table reveals three things. First, as we
expected, the short first-difference estimates exhibit
and robust across samples and estimators,
some loss of precision. Whereas in the long first-
including pay-for-skill andjob rotation, pay- difference estimates in Tables 3-5 standard errors
for skill and self-managed teams, and profit- went up (relative to the cross-sectional estimates)
sharing and self-managed teams. But once trivially or even fell, here they often go up by a factor
we take account of the main and interactive as high as 1.5 or 2.0. Second, the pooled cross-section
estimates are often quite a bit different from the
effects, there is virtually no evidence that
cross-section estimates reported in Tables 3-5 (see,
jointly implementing any of the wide set of for example, the estimated effects for computer use).
work practices we consider reduces unit Finally, however, with the exception of benchmarking,
labor costs. Indeed, many of the point the estimates provide no evidence of effects of any of
these work practices on productivity, or on the in-
estimates are near zero.29
verse of unit labor costs.
We also examined evidence on differences in the
effects of high-performance work practices between
establishments with and without unionized work
29Although we have offered many reasons for pre- forces; however, we have no information on unioniza-
ferring our "long" longitudinal design, we also exam- tion in 1977, so we were limited to cross-sectional
ined results for the short panel that can be con- estimates. There were few differences, although a
structed using the 1993 and 1996 files, for the more handful of the estimates suggested that high-perfor-
limited set of work practices included in the latter mance work practices increased unit labor costs in
file. These results are reported in Appendix Table the union sector.
though the statistical case for arguing that cant. These findings are to some extent at
they do so is weak, especially in the longitu- odds with the existing literature, although
dinal estimation. Furthermore, we gener- comparisons are difficult. Aside from our
ally find no effect of these high-perfor- focus on the overall effects of bundles of
mance work practices on labor efficiency, work practices, the evidence for synergies
which we measure as the inverse of unit comes from productivity studies done in
labor costs (that is, value of output per the context of particular production pro-
dollar spent on labor), although it is impor- cesses and work practices, and the syner-
tant to keep in mind the caveat that, statis- gies studied are not identical across stud-
tically, a failure to find significant effects ies. The studies by Huselid (1995) and
does not establish that there are no effects. Black and Lynch (1997) that examined syn-
The economic implications of these sta- ergies among a representative population
tistical results are not entirely clear-cut. of employers found little evidence of these
The results for unit labor costs suggest that relationships.30 Supporters of the notion
high-performance work practices entail that there are synergies between practices
offsetting increases in labor costs and pro- might well argue that evidence of synergies
ductivity. What is the net effect for the exists only in the context of various contin-
employer? Assuming that non-labor costs gencies. Short of testing every possible com-
rise less than proportionately to labor costs bination of work practices (at least nine prac-
when high-performance work practices are tices in our data) and every contingency (by
implemented, relative improvements in industry, by union status, and so on), this
worker productivity that are similar in mag- theoretical possibility will always remain. But
nitude to relative increases in labor costs the fact that we find no evidence of synergies
per worker would increase employer profit- even among the most obvious and theoreti-
ability as well as employee compensation, cally grounded interactions may constitute
more so the lower labor costs are as a share the strongest evidence that can practically be
of total costs. In the absence of evidence to brought to bear on this question.
support that assumption, however, a safer It is also important to be clear about the
conclusion consistent with the above re- limits of this study. The fact that our sample
sults is that high-performance work prac- is limited to manufacturing clearly con-
tices raise employee compensation without strains our ability to draw conclusions about
necessarily harming the overall profitability high-performance work systems in the rest
and competitiveness of the firms that imple- of the economy. In addition, the possibility
ment them. And if one takes more seriously exists that relationships between work prac-
the relative weakness of the results concern- tices and organizational performance could
ing productivity, an even more careful con- be very different-for better or worse-in
clusion would be that high-performance work the context of some contingency. Finally,
practices raise labor costs, and therefore while we believe that our empirical strategy
worker compensation, but the net effect on for identifying the causal effects of work
overall profitability is unclear. practices on establishment performance
When we look at how sets of work prac- improves on the existing research, further
tices interact to affect establishment out- work remains to resolve the difficult prob-
comes, we find some evidence of interac- lem of heterogeneity or self-selection in
tive effects of high-performance work prac- the adoption of work practices.
tices in the direction of raising productivity
and lowering unit labor costs, consistent
with synergies. But the estimates also imply 30The latter, for example, found only one statisti-
that the combined effects of implementing cally significant interaction, and that only with the
additional contingency of unionization. In addition,
the sets of work practices for which we find
the estimated main effect of unionization was strongly
these apparent synergies-which strikes us negative, emphasizing the point that combined main
as the relevant empirical question-are and interactive effects may be much smaller than
generally small and statistically insignifi- suggested by a large interactive effect.
Appendix
Anecdotal Evidence and Initial Reports on the Introduction of Innovative Work Practices
Our approach to estimating the causal effects of into gains for the organization.32 The improvements
work practices on establishment performance relies observed were mainly in the attitudes of individual
on the assertion that such practices were not present employees and, to a lesser extent, in performance
in U.S. establishments to any measurable extent as of measures at the individual level, such as turnover and
1977. Evidence for this assertion, in addition to the absenteeism (see main text). The revival of interest
material presented in the main text, is presented in job rotation came with the interest in Japanese
below, separately for each aspect of work organiza- management practices in the late 1980s, in which job
tion analyzed in the text. rotation was a part of a set of practices that included
TQM: Total quality management is a concept teamwork and continuous improvement, or Kaizan.
based on Japanese manufacturing practices and ar- Cross-Training: The notion of cross-training would
ticulated by a series of authors, most notably Edwards seem to be driven primarily by the interest in moving
Deming, whose first publication in English for a mass employees across different jobs, and to be closely
audience on the subject was in 1984 (Deming 1984). related to job rotation. Job rotation when initially
In terms of practice in the West, it appears to have introduced referred to assembly line and other low-
evolved from the quality circle movement in the early skill jobs in work environments where no additional
1980s and was first recognized as a movement in skills were needed to move from one job to another.
companies in the late 1980s. (See, for example, Hill Cross-training was initially introduced to refer spe-
[1991] and Harris [1995] for evidence on the rise of cifically to situations in which differentjobs could not
TQM as a movement.) The first account of a TQM be performed without new skills. The first mention
program in the United States that we found in the that we can find of an instance of cross-training is at
popular press was at the Allen-Bradley Company in Delta Airlines in 1980, where cross-training was pre-
1987, where it was referred to as TQMS, for "total sented as an intervention to help employees under-
quality management system" (PR NEWSWIRE 1987). stand how their individual jobs contributed to the
The first survey of firms to ask about the incidence of overall goals of the company (DowJones New Service
TQM took place in 1990 (Grant Thorton 1991). 1980). The first academic mention of cross-training
Pay-for-Skill: This concept was first presented in appears to have been in 1986 (Gotz and Stanton
1985 as part of a more general critique by Edward 1986).
Lawler of U.S. compensation practices. It was origi- Benchmarking: No doubt the informal process of
nally known as "skill-based pay" (Lawler 1985). The making comparisons with practices at other organiza-
first company reported to be using pay-for-skill was tions has a very long history. But the systematic
General Mills in 1991 (Ledford and Bergel 1991). attempt to learn and copy individual practices from
Job Rotation: This term has one of the longer organizations that are seen as leaders in those areas
legacies among work practice innovations. Academic (irrespective of whether they are competitors), and
interest in job rotation appears to have begun in the the term "benchmarking," is generally acknowledged
late 1960s with the argument that job rotation may to have begun in the corporate world in 1981 with the
reduce boredom among employees performing simple Xerox Corporation's efforts to improve its sliding
tasks. The first academic reference we find to the competitive position against Japanese competitors
concept is in a very short note in 1968 in the context (Jacobson and Hillkirk 1986). By the end of the
of implications for expanding shift work, which ar- 1980s, benchmarking was widespread and seen as an
gued that job rotation may equally have negative integral part of efforts to improve organizational
effects on individual performance depending on the performance (Fray 1988).
circumstances (Wilkerson and Edwards 1968). In the
mid-1970s there were some experiments with job
rotation as part of more general experiments in job
enrichment, but they also seemed rare enough to
merit articles about individual experiments (for ex- 32During the 1973-75 recession, some companies
ample, King 1974).31 These experiments in job de- (particularly those with unions) went to a four-day
sign were essentially abandoned by the late 1970s week in an effort to avoid more severe layoffs. In the
because employers found that they did not translate process of shortening the workweek, work assign-
ments were often changed, and workers sometimes
had to rotate across jobs in order to get the work
done. Job rotation was an unintended consequence
31During the 1970s, the business press sometimes of this process and was frequently discussed in the
referred to executive development programs in which business press (for example, Feron 1974). But it was
managers were moved through different areas of the not the design of company policies, nor was it con-
corporation in order to get experience as 'job rota- ducted in ways that were designed to produce the
tion," but this is a very different notion from the effects associated with modernjob rotation. Virtually
modern definition that refers to regular movement all companies soon dropped their experiments with
across discrete job tasks, typically for production shortened workweeks and the job rotation that re-
work, on a long-term or permanent basis. sulted from them.
Self-Managed Teams: A subset of teamwork is self- has the longest academic history of any of the innova-
managed teams, in which team members manage tive workplace practices. Some gain-sharing plans
themselves, taking on most of the responsibilities of clearly were in operation before 1977, although the
supervision and directing their own work. The first number of employers with such plans appears to have
mention of self-managed teams we can find is in 1989 been very small. Perhaps the most popular incarna-
(Luthans and Fox 1989), in an article about pay-for- tion of gain-sharing ideas w-as that put forward by
skill. In the 1990 article generally credited with Joseph Scanlon in the 1950s and subsequently contin-
bringing the concept to popular attention (Dumaine ued and adapted by his followers. Scanlon plans were
1990), self-managed teams were described as a "still almost entirely in unionized facilities. Cotton (1993)
controversial innovation" that only a few companies estimated that 500 companies had at one time or
had experimented with during the 1980s. another adopted Scanlon plans, although it is diffi-
Meetings: The concept of employees organized in cult to know how many of those were in place before
regularly scheduled meetings to discuss workplace 1977. Reviews of specific gain-sharing plans come up
problems is obviously broad in its scope. But there is with fairly small numbers-44 Scanlon plans in 1975
still little evidence that such arrangements existed be- (National Commission on Productivity and Work
fore the 1980s. Quality circles seem to be the best- Quality 1975), and 72 examples of Improshare in
known common practice that fits this definition. Cot- 1982 (Fein 1982)-although these studies were not
ton (1993) indicated that two U.S. companies experi- necessarily designed to establish the incidence in the
mented with quality circle principles in the mid-1970s. population. The New York Stock Exchange survey
Otherwise, the practice began to spread with the inter- noted above found roughly 4% of firms with some
est in Japanese management beginning in the mid- profit-sharing in 1982. It is quite possible that some
1980s. Stronger examples of scheduled meetings in the of the establishments in the 1977 LRD data had
form of teams seem equally rare. One estimate suggests profit-sharing or gain-sharing plans. But it also seems
that no more than 24 plants in the United States had likely that the percentage with such plans was very
teamwork principles in 1976 (Hoerr 1986). small, especially as compared to the percentage that
Gain-Sharing/Profit-Sharing: The notion of sharing had them in 1993 (approximately 60% of establish-
performance improvements with employees certainly ments).
Appendix Table Al
NES Manufacturing Analysis Samples
A. Observations
1994 NES 1997 NES
Description (1) (2)
Full NES Sample of Interviews 3,164 4,363

Manufacturing Subsample of NES 1,726 2,516
Delete Bad/Missing Data:

Work Force Characteristics 1,320 1,951
Establishment Characteristics and Performance 742 1,227
Computer Use Work Practices 732 1,214
Benchmark, Job Rotation, and Self-Managed Teams Work Practices 719 1,158
Meeting Work Practices 716 1,155
1994 NES Only:

Pay for Skill or Knowledge and Profit/Gain-Sharing Work Practices 700
Team and Cross-Training and TQM Work Practices 698
Obtain Labor Costs from 1992/1993 LRDs 665

Match to 1977 LRD 433 666
B. Sample' Characteristics
1977-93 Panel,
1993 Cross-Section 1993 Values
Number of Workers 120.64 152.25

(250.39) (328.25)
Establishment Age 24.30 33.40
(21.17) (22.69)
Indust,ry:
Food and Tobacco .060 .074
Textile and Apparel .061 .051
Lumber and Paper Products .100 .089
Printing and Publishing .107 .130
Chemical and Petroleum .047 .055
Primary Metals .033 .038
Fabricated Metals .114 .134
Machinery and Instruments .292 .271
Transportation Equipment .032 .026
Miscellaneous Manufacturing .154 .132
Panel A of this table shows sample sizes available after we impose sample restrictions or delete observations
with bad or missing data. Panel B reports means, with standard deviations of continuous variables in
parentheses.
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Appendix Table A4
Work Practice OLS Regressions for Log of Sales/Worker, Log of Labor Costs/Worker, Log of Inverse of
Unit Labor Costs, Pooled and First Difference Estimates for 1993-1996 Panel, Manufacturing Plants
Log Labor Costsl Log Inverse Unit

Log Sales/Worker Worker Labor Costs
First First First

Pooled Difference Pooled Difference Pooled Difference
A. Individual Work Practices
1. MGRCMPTRUSE/100 .024 .173 .040 -.133 -.016 .307

(.086) (.131) (.093) (.191) (.097) (.192)
WKRCMPTRUSE/ 100 .066 -.084 -.039 -.178 .105 .094

(.094) (.112) (.097) (.164) (.110) (.165)
2. BENCHMRKG .087* .136* .131* .136 -.044 .000
(.049) (.060) (.056) (.088) (.061) (.089)
3. MEET/ 1 00 .088 -.126 .082 .008 .006 -.133

(.061) (.078) (.069) (.115) (.076) (.116)
4. JOBROT/100 -.014 .024 -.065 .189 .052 -.165
(.074) (.104) (.132) (.151) (.138) (.153)
5. SELFMNG/100 -.009 -.121 .005 -.100 -.014 -.020
(.085) (.111) (.099) (.162) (.102) (.164)
B. Work Practice Bundles
ll.JOBROT -.054 -.101 -.072 .169 .019 -.270

(.080) (.121) (.154) (.179) (.161) (.180)
SELFMNG -.073 -.343* .013 -.178 -.087 -.166
(.114) (.149) (.123) (.219) (.106) (.221)
JOBROTXSELFMNG .198 .609* .019 .147 .179 .463
(.212) (.277) (.263) (.408) (.252) (.412)
Main + Interactive Effects: -.014 -.075 -.027 .025 .013 -.100
P-Value: .779 .314 .688 .818 .859 .366
N 410 205 410 205 410 205
See notes to Table 3. In the pooled estimates, the reported standard errors are robust with respect to non-
independence across observations on the same plant.
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Do "High-Performance" Work Practices Improve Establishment-Level Outcomes?

Author(s): Peter Cappelli and David Neumark

IMPROVE ESTABLISHMENT-LEVEL OUTCOMES?

PETER CAPPELLI and DAVID NEUMARK*

Studies of how different work practices affect organizational perfor-

Arguments suggesting that alternative back at least to the beginnings of industri-

*Peter Cappelli is George W. Taylor Professor of

inconclusive. I In this study of high-perfor- to employees over at least some range of

formance. The stronger evidence concerns specific practices; it is frequently referred

Figure 1. Constructed Manufacturing Data Sets.

1992,1993 LRD 1993-1996

Table 1. Descriptive Statistics and Variable Descriptions for

MEET 40.42 49.44 36.33 43.81 What percentage of non-managerial and

JOBROT 17.23 24.73 14.91 21.12 What percentage of non-managerial and

SELFMNG 12.10 16.55 8.52 12.39 What percentage of non-managerial and

TQM .42 - .41 Has your establishment adopted a formal

Does your establishment pay for or

CROssTRN .69 .66 - Cross-training?

TEAMWORKTRN .52 .45 Teamwork or problem-solving training?

PAYSKILL 21.88 22.58 What percentage of your employees receive

18The labor cost measure has three components:

Table 2. Descriptive Statistics and Variable

1977-1993 Panel 1977-1 996 Panel

1977 1993 1977 1996 Variable Description

SALESVALLessLBRCOST 1.23 1.24 1.22 1.56 Log(SALESVAL)-Log(LBRCOST)

N 433 433 666 666

Productivity have a common theme of employee in-

Differ- Differ- Differ- Differ-

A. Individual Work Practices B. Work Practice Bundles (cont'd)

1977-1993 Panel 1977-1996 Panel 1977-1993 Panel 1977-1996 Panel

Differ- Differ- Differ- Differ-

A. Individual Work Practices B. Work Practice Bundles (Cont'd)

See notes to Table 3.

A. Individual Work Practices

8. TEAMWORK TRN +/+ -.010 -.021

B. Work Practice Bundles

B. Work Practice Bundles (cont'd)

labor efficiency. For example, a positive 4 revealed at least marginally statistically

Thus, the evidence suggests that a num- Conclusions

1994 NES 1997 NES

Description (1) (2)

Full NES Sample of Interviews 3,164 4,363

Delete Bad/Missing Data:

1994 NES Only:

Obtain Labor Costs from 1992/1993 LRDs 665

Number of Workers 120.64 152.25

c~~~~~ ~~~~ a., 40 4T- O

7~~~~i 0000 ~ ~ ~ ~~~~~~4

bQ C\sst1 o > O?/;On -4 4-) z

Log Labor Costsl Log Inverse Unit

First First First

A. Individual Work Practices

1. MGRCMPTRUSE/100 .024 .173 .040 -.133 -.016 .307

WKRCMPTRUSE/ 100 .066 -.084 -.039 -.178 .105 .094

3. MEET/ 1 00 .088 -.126 .082 .008 .006 -.133

ll.JOBROT -.054 -.101 -.072 .169 .019 -.270

Anonymous. 1995. "Nontraditional Pay Practices on Configurational Performance Predictions." Acad-

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c~ a., 40 4T- O