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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.

Suggested Citation

  • Susan Helper, 1997. "Complementarity and Cost Reduction: Evidence from the Auto Supply Industry," NBER Working Papers 6033, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6033 Note: PR
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    References listed on IDEAS

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    9. Helper, Susan, 1991. "Strategy and Irreversibility in Supplier Relations: The Case of the U.S. Automobile Industry," Business History Review, Cambridge University Press, vol. 65(04), pages 781-824, December.
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    Citations

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    Cited by:

    1. Johannes Van Biesebroeck, 2007. "Complementarities in automobile production," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1315-1345.
    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, August.
    3. Derek C. Jones & Takao Kato, 2011. "The Impact of Teams on Output, Quality, and Downtime: An Empirical Analysis Using Individual Panel Data," ILR Review, Cornell University, ILR School, vol. 64(2), pages 215-240, January.
    4. 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).
    5. 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.
    6. Susan Helper & David I. Levine & Elliot Bendoly, 2002. "Employee Involvement And Pay At Us And Canadian Auto Suppliers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(2), pages 329-377, June.
    7. 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.
    8. 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.
    9. 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).
    10. 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.
    11. 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.

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