Employee participation and enterprise performance : an economic analysis
This study investigates the relationship between employee participation in decision-making within production enterprises and their economic performance. Alternative forms of employee involvement such as profit sharing and employee ownership are also considered. A theoretical framework is developed in which the firm's structural and performance characteristics are seen as the outcome of a strategic game in which employers and workers can either seek to impose unilateral control or cooperate to maximise joint welfare. Two new theoretical insights are gained. The first is that a latent 'prisoners dilemma' may be inhibiting more widespread adoption of participatory production. The second involves an important distinction between two conceptually separate ways in which the hypothesized participation-performance relationship might operate. Problems of measuring the key, participation variable in empirical work are raised and solved. A test procedure is devised and applied to arbitrarily-weighted participation indexes of the kind used in previous econometric work. In all cases tested the indices are found to rest on unacceptably restrictive assumptions. This calls into question previous results and appears to present a barrier to further work. However alternative, Guttman scales of participation are proposed anfound statistically valid for samples of firms in the West German and UK engineering industries. Incidentally these tests provide support for an existing hypothesis in the literature concerning the pattern of development of participation within the firm. When applied to subsamples of participatory and non-participatory firms in the West German database, significance tests of subsample means and discriminant analysis reveal no statistically significant differences in productivity. However significant differences in technology and labour-force characteristics are found, in particular indicating greater human capital development in participatory firms. OLS and 2SLS estimates of augumented production functions in general confirm these results. Implications for public policy measures to promote greater industrial democracy and profit-sharing are briefly considered.