Do “High-Performance” Work Practices Improve Establishment-Level Outcomes?

Studies of how different work practices affect organizational performance have suffered from methodological problems. Especially intractable 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 organizations, 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, suggesting 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.