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Complementarity and Cost Reduction: Evidence from the Auto Supply Industry

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  • Susan Helper

Abstract

Over the last 20 years, the success of Japanese manufacturing firms has brought renewed attention to the importance of cost reduction on existing products as a source of productivity growth. This paper uses survey data and field interviews from the auto supply industry to explore the determinants of average-cost reduction for a sample of 171 plants in the United States and Canada between 1988 and 1992. The main result is that the determinants of cost reduction differ markedly between firms which had employee involvement programs in 1988 and firms that did not. The two groups of firms achieved equal amounts of cost reduction, but did so in very different ways. Firms with employee involvement saw their costs fall more if they also had such involvement gained no cost-reduction benefit from these programs; instead, their cost-reduction success was largely a function of increases in volume. These results provide support for Milgrom and Roberts's concept that certain production practices exhibit complementarity.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6033.

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Date of creation: May 1997
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Handle: RePEc:nbr:nberwo:6033

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  1. Samuel Hollander, 1965. "The Sources of Increased Efficiency: A Study of DuPont Rayon Plants," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258235x, December.
  2. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  3. Aoki, Masahiko, 1990. "Toward an Economic Model of the Japanese Firm," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 1-27, March.
  4. Casey Ichniowski & Kathryn Shaw & Giovanna Prennushi, 1995. "The Effects of Human Resource Management Practices on Productivity," NBER Working Papers 5333, National Bureau of Economic Research, Inc.
  5. Helper, Susan & Levine, David I, 1992. "Long-Term Supplier Relations and Product-Market Structure," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(3), pages 561-81, October.
  6. Paul S. Adler & Kim B. Clark, 1991. "Behind the Learning Curve: A Sketch of the Learning Process," Management Science, INFORMS, vol. 37(3), pages 267-281, March.
  7. Hirschman,Albert O., 1981. "Essays in Trespassing," Cambridge Books, Cambridge University Press, number 9780521282437, October.
  8. Kim B. Clark, 1989. "Project Scope and Project Performance: The Effect of Parts Strategy and Supplier Involvement on Product Development," Management Science, INFORMS, vol. 35(10), pages 1247-1263, October.
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Cited by:
  1. Kato, Takao & Lee, Ju Ho & Ryu, Jang-Soo, 2010. "The Productivity Effects of Profit Sharing, Employee Ownership, Stock Option and Team Incentive Plans: Evidence from Korean Panel Data," IZA Discussion Papers 5111, Institute for the Study of Labor (IZA).
  2. Uwe Jirjahn & Jens Mohrenweiser & Uschi Backesā€Gellner, 2011. "Works Councils and Learning: On the Dynamic Dimension of Codetermination," Kyklos, Wiley Blackwell, vol. 64(3), pages 427-447, 08.
  3. Helper, S. & Levine, D.I. & Bendoly, E., 1999. "Employee Involvment and Pay at U.S. and Canadian Auto Suppliers," Papers 71, California Berkeley - Institute of Industrial Relations.
  4. Jones, Derek & Kato, Takao, 2007. "The Impact of Teams on Output, Quality and Downtime: An Empirical Analysis Using Individual Panel Data," Working Papers 104-24, Department of Economics, Colgate University.
  5. Hiroyuki Chuma & Takao Kato & Isao Ohashi, 2004. "What Japanese Workers Want: Evidence from the Japanese Worker Representation and Participation Survey," Discussion papers 04019, Research Institute of Economy, Trade and Industry (RIETI).
  6. Johannes Van Biesebroeck, 2007. "Complementarities in automobile production," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1315-1345.
  7. Joshua G. Rosett & Richard N. Rosett, 1999. "Characteristics of TQM: Evidence from the RIT/USA Today Quality Cup Competition," NBER Working Papers 7241, National Bureau of Economic Research, Inc.
  8. Sharon Novak & Scott Stern, 2007. "Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development," NBER Working Papers 13232, National Bureau of Economic Research, Inc.
  9. Derek C. Jones & Takao Kato, 2003. "The Effect of Employee Involvment on Firm Performance: Evidence from an Econometric Case Study," William Davidson Institute Working Papers Series 2003-612, William Davidson Institute at the University of Michigan.
  10. Iain Cockburn & Rebecca Henderson & Scott Stern, 1999. "The Diffusion of Science-Driven Drug Discovery: Organizational Change in Pharmaceutical Research," NBER Working Papers 7359, National Bureau of Economic Research, Inc.
  11. Derek C. Jones & Srecko Goic, 2010. "Do Innovative Workplace Practices Foster Mutual Gains? Evidence From Croatia," William Davidson Institute Working Papers Series wp993, William Davidson Institute at the University of Michigan.

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