Evidence Part IV

An early Daniel Yankelovich poll of business leaders asked the question: Does job dissatisfaction lead to high turnover, tardiness, loafing on the job, poor workmanship, and indifference to customers and clients? Of the 563 respondents, 94 percent thought that such an association does exist. (Katzell and Yankelovich, 1975)  The GEM Project has rationally linked worker satisfaction with his or her inherent preference for equitable treatment by management. The poll is only a tiny part of a great deal of supportive evidence, which is sampled in this post.

Fair wages. Alan Blinder and Don Choi (1990) surveyed nineteen firms in 1988 and found that managers believed that a wage policy perceived to be unfair would have predictable effects:

• All interviewees thought that the quality of job applicants would be reduced;
• Eighteen of nineteen responded that worker effort on the job would be adversely affected; and
• Sixteen of nineteen concluded that such a policy would cause turnover problems.

Most of the managers in the survey believed that the justification for wage cuts was important. If clearly made to save the firm or to bring wages in line with competitors, employees were more likely to accept them without adverse effects on workplace productivity.

Economists have been especially interested in worker OJB response to wage cuts. Jonas Agell and Per Lundborg (1995) examined management views of workplace conduct in response to adverse departures from established reference wages in a survey of 170 manufacturers in Sweden. Most firms responded that fairness and worker morale are of overriding importance in wage policymaking. Eighty percent believed that at least half of their jobs would have to be clearly at risk for employees to accept wage cuts with no adverse effects on productivity on the job. From his interviews with 26 nonunionized firms in Britain in 1982, Roger Kaufman (1984) similarly reported that the related issues of fairness and worker morale were the most cited reasons for not cutting wages.

Carl Campbell and Kunal Kamlani (1997) attempted to quantify worker response functions (i.e., the relation between worker effective effort and wage cuts), reporting results that support the rational payment of efficiency wages. Surveying 184 compensation executives from large firms, they asked how much workplace effort would decrease if wages were cut by 10 percent. The mean response was 20 percent. Nearly 7 out of 10 believed that the principal reason for the harmful effects was damaged worker loyalty. Most also thought that effort would be most impacted if employees believe that their employer is profitable and least affected if there are credible financial losses that threaten jobs.

The most impressive investigation of the effect of equity on wage policymaking was conducted by Truman Bewley (1999a). His interview results are especially instructive and have been cited previously. Perhaps most notably, Bewley asked 104 businesses why worker morale matters to them: “Managers were concerned about morale mainly because of its impact on productivity. They said that when morale is bad, workers distract one another with complaints and that good morale makes workers willing to do extra, to stay late until a job is done, to encourage and help one another, to make suggestions for improvements, and to speak well of the company to outsiders” (pp.47-48). The incidence of their responses was presented in the first chapter and deserves reiteration:

Bewley (1999b, p.1) concluded: “Employers were reluctant to cut pay because they believed doing so would hurt employee morale, leading to lower productivity and current or future difficulties with hiring and retention. It was thought that these effects would in the end cost more than the savings from lower pay.”

David Romer (2001) has usefully summarized economists’ survey-based results: “The surveys consistently suggest that workers’ morale and perceptions of whether they are being treated appropriately are critical to their productivity. The surveys also suggest that workers have strong views about what actions by the firm are appropriate, and that as a result their sense of satisfaction is precarious.” (p. 460)

Other measures if fairness. Similar results come from a broad range of specialties outside economics. For example, in the December 2002 issue of the Journal of Occupational and Environmental Medicine, researchers found that sick days taken were strongly influenced by employee assessment of management fairness. They found that men who felt that workplace decision-making was arbitrary were 41 percent more likely to use sick days than men who did not. Meanwhile, disgruntled women took 12 percent more sick days than satisfied women. (The New York Times, December 24, 2002, p.6.)

Laboratory experiments have also yielded results that are consistent with the TVGE model class. They provide, for example, the evidence gathered by Ernst Fehr and his coauthors in a number of studies that demonstrate the importance of social norms and reciprocal behavior in the determination of worker effort. (See Fehr and Falk (1999), Fehr et al. (1996), and Fehr et al. (1993).)

Blog Type: Policy/Topical Saint Joseph, Michigan