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Are Franchises Bad Employers?

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  • Peter Cappelli
  • Monika Hamori

Abstract

Franchise jobs are often described as representing the epitome of the "low road" approach to managing employees: high turnover, little training, deskilled jobs, and little employee involvement, practices often seen as unsophisticated. Research on franchise operations suggests, however, that the basic operating principles and practices of franchises tend to be more sophisticated than those of equivalent independent operators. We might therefore expect their employee management practices to be more advanced as well, challenging the stereotype of franchise jobs. We use data from a national probability sample of establishments to examine the relationship between franchise status and employment practices. While descriptive statistics suggest that franchise operations use low road practices, once industry, size, and other control variables are included in the analysis, franchise operations appear on important dimensions to offer better jobs with more sophisticated systems of employee management than similar non-franchise operations.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13327.

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Date of creation: Aug 2007
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Publication status: published as Peter Cappelli & Monika Hamori, 2008. "Are Franchises Bad Employers?," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 61(2), pages 147-162, January.
Handle: RePEc:nbr:nberwo:13327

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  1. Hennessy, David A., 2003. "Property Rights, Productivity, and the Nature of Noncontractible Actions in a Franchise System," Staff General Research Papers 11750, Iowa State University, Department of Economics.
  2. Sandra E. Black & Lisa M. Lynch & Anya Krivelyova, 2003. "How workers fare when employers innovate," Working Paper Series, Federal Reserve Bank of San Francisco 2003-22, Federal Reserve Bank of San Francisco.
  3. O. Brown Jr., William, 1998. "Transaction costs, corporate hierarchies, and the theory of franchising," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 36(3), pages 319-329, August.
  4. Krueger, Alan B, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(1), pages 75-101, February.
  5. Rubin, Paul H, 1978. "The Theory of the Firm and the Structure of the Franchise Contract," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 21(1), pages 223-33, April.
  6. Gil A. Preuss, 2003. "High performance work systems and organizational outcomes: The mediating role of information quality," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(4), pages 590-605, July.
  7. Norton, Seth W, 1988. "An Empirical Look at Franchising as an Organizational Form," The Journal of Business, University of Chicago Press, vol. 61(2), pages 197-218, April.
  8. Combs, James G. & Ketchen, David Jr. & Hoover, Vera L., 2004. "A strategic groups approach to the franchising-performance relationship," Journal of Business Venturing, Elsevier, vol. 19(6), pages 877-897, November.
  9. Knott, Anne Marie & McKelvey, Bill, 1999. "Nirvana efficiency: a comparative test of residual claims and routines," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 38(4), pages 365-383, April.
  10. Scott Shane & Maw-Der Foo, 1999. "New Firm Survival: Institutional Explanations for New Franchisor Mortality," Management Science, INFORMS, INFORMS, vol. 45(2), pages 142-159, February.
  11. Paul Osterman, 1994. "How common is workplace transformation and who adopts it?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(2), pages 173-188, January.
  12. John Godard, 2001. "High performance and the transformation of work? The implications of alternative work practices for the experience and outcomes of work," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 54(4), pages 776-805, July.
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