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High-performance work practices lead to increased productivity and wages among workers

Washington, D.C. — As manufacturing plants and companies face increased competition from abroad, widespread domestic deregulation at home, global flows of hot money that destabilize exchange rates, and a rising share of imports and exports putting downward pressure on prices, the adoption of high-performance work systems (HPWSs) has become critical for firms seeking to remain globally competitive and maintain productivity, according to a new book by the Economic Policy Institute (EPI).

Manufacturing Advantage: Why High-Performance Work Systems Pay Off (Cornell University Press), by Eileen Appelbaum, Thomas Bailey, Peter Berg, and Arne L. Kalleberg, examines how HPWSs can help firms enhance their competitive advantage by adopting modern manufacturing practices that reduce costs and improve plant performance. The authors look at the effects these high-performance practices have on wages and important nonmonetary outcomes for workers.

The core of a high-performance work system in manufacturing is that work is organized to permit front-line workers to participate in decisions that alter organizational routines. This may be achieved in a number of ways, such as using shop-floor production teams or through employee participation in problem solving or quality-improvement teams.

The book focuses on the effect of HPWSs on workers and firms in three manufacturing industries: steel, apparel, and medical electronic instruments and imaging. The authors found that across these diverse industries, similar HPWSs had the following beneficial effects on firms that were surveyed:

  • Increases labor productivity and reduces unit labor costs – Firms adopting HPWSs may reduce the number of employees – including supervisors, service workers, and warehouse staff – required, but total employment of production workers rise as these firms become preferred suppliers.
  • Inventory buffers may be reduced – An increase in annual inventory turns is associated with smaller inventories and lower inventory carrying costs. HPWSs may reduce waste by improving first-time quality or lower the amount of space required for producing output, thus requiring less capital and reducing overhead costs.
  • Actual plant production can more closely mirror potential production –
    By reducing equipment failures or other disruptions in the production process.
  • HPWSs may lead to economic gains for plants by increasing revenues and creating information rents – More participatory work organization allows the plant to produce a more complex product mix, for example, or enables it to provide reliable on-time delivery of products.

The report not only examined the effect of adopting high-performance practices on the firms themselves, but also found that these practices led to five important worker outcomes:

  • Higher wages for employees in more participatory work systems.
  • A raised level of trust among workers towards their managers within workplaces.
  • Greater intrinsic rewards from work in terms of both earnings and working conditions reaped by employees.
  • A higher level of organizational commitment on the part of workers.
  • No adverse effect on job satisfaction for workers in HPWSs.
  • No increase in worker stress, in fact most aspects of participation reduced levels of job stressors.

Firms have realized the broad benefits of adopting HPWSs and survey evidence indicates that workplace change has been quite rapid in recent years. The authors found greater use of these high performance practices by firms, and greater proportions of workers within firms engaged in these practices.

“In the 1980s and 1990s, the workplace changes required in order to compete in a global marketplace have become clear,” according to the authors. “High-performance work systems can give American plants competitive advantage and enable them to prosper in a global economy.”

Eileen Appelbaum is Research Director at the Economic Policy Institute. Formerly a Professor of Economics at Temple University, she is author or co-author of several books, including The New American Workplace: Transforming Work Systems in the United States (ILR Press).

Peter Berg is a Research Associate at the Economic Policy Institute and Assistant Professor in the School of Labor and Industrial Relations at Michigan State University. He is editor of Creating Competitive Capacity: Labor Market Institutions and Workplace Practices in Germany and the United States.

Thomas Bailey is Professor of Economics of Education and Director of
The Institute on Education and the Economy at Columbia University. He is author or co-author of several books, most recently Learning to Work.

Arne L. Kalleberg is the Kenan Professor of Sociology and Chair of the Department of Sociology at the University of North Carolina, Chapel Hill. He has co-authored or edited four books, the most recent of which is Organizations In America: A Portrait of Their Structures and Human Resource Practices.

The Economic Policy Institute is a nonprofit, non-partisan economic think tank based in Washington, D.C. Its founders include economic policy experts Jeff Faux, Lester Thurow, Robert Reich, Robert Kuttner and Ray Marshall.

For more information, contact:
Nan Gibson (202) 331-5546
Brian Lustig (202) 331-5530