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Reassessing the Productivity Impact of Employee Involvement and Financial Incentives

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  • Elke Wolf
  • Thomas Zwick

Abstract

Employee involvement and financial incentives are often praised as effective means for increasing firm productivity. We assess the productivity effects of these human resource practices by accounting for the main sources of estimation bias – unobserved heterogeneity and endogeneity – and by using representative establishment panel data for Germany. We show that employee involvement raises establishment productivity, but financial incentive systems do not. An important result is that accounting for unobserved heterogeneity and endogeneity reverses the conclusions on the estimated productivity effects obtained from simple cross-sectional regressions.

Suggested Citation

  • Elke Wolf & Thomas Zwick, 2008. "Reassessing the Productivity Impact of Employee Involvement and Financial Incentives," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 60(2), pages 160-181, April.
  • Handle: RePEc:sbr:abstra:v:60:y:2008:i:2:p:160-181
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    Keywords

    High Performance Workplaces; Microeconometric Evaluation; Productivity;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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