Employee participation and productivity

This paper measures the productivity impact of shop-floor employee involvement. On the basis of a representative German establishment data set, the study finds that the introduction of teamwork and autonomous work groups, and a reduction of hierarchies in 1996/1997 significantly increased average establishment productivity in 1997–2000. The estimation strategy controls for unobserved invariant establishment heterogeneity by using a two-step system GMM panel regression approach. It simultaneously takes account of endogeneity of participative work organization by instrument variable regressions. It is also shown that the productivity effect of shop-floor employee involvement is stronger in establishments with works councils.