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Research: Workers in High Performance Systems Earn More Than Those in Traditional Settings

In the first analysis of individual-level earnings data studying the relationship between earnings and workplace innovations, researchers at Teachers College found that self-directed and offline teams in the apparel, steel and medical and electronic imaging industries were paid higher salaries than workers in traditional production systems.

Thomas Bailey, Director of Teachers College's Institute on Education and the Economy (IEE), said that in the "voluminous literature on work organization, only a handful of researchers have tried to measure whether work place innovations financially benefit workers. This research presents the first analysis of individual-level (versus aggregate-level) earnings data investigating the relationship between earnings and participatory innovations in the organization of work."

The IEE is dedicated to carrying out research that will help improve educational policy and practice at the local, state, and national levels.

In an increasingly competitive and globally integrated economy, American companies are implementing process changes to raise efficiency. These companies are using new technology along with new forms of work organization to produce high product quality standards, to control inventory, and to meet rapid and on-time delivery schedules. In the economics literature, this trend is often attributed to technological change, which the study says, "arguably could include innovative work place practices."

In "The Effect of High-Performance Work Practices on Employees Earnings In The Steel, Apparel and Medical Electronics Industries," (published in volume 54 of Industrial and Labor Relations Review) the researchers used a unique survey of more than 4,000 employees in 45 establishments in three industries-apparel, steel, and medical electronics-conducted between 1995 and 1997. The survey provides information on workers' weekly earnings, demographic characteristics, tenure and work experience, as well as the type of organization in which they were employed. "Whereas, previous research has been thwarted by the absence of micro data linking individuals to particular types of work."

Bailey and his co-authors, Peter Berg, Assistant Professor in the School of Labor Relations at Michigan State University, and Carola Sandy, an economist at Credit Suisse, First Boston, characterize high-performance work systems (HPWS) by three components. They are a work organization that provides employees with the opportunity to participate in decisions, incentives that encourage employee participation, and human resource practices that ensure an appropriately skilled work force.

According to Bailey, "Organizing the work process so that non-managerial employees have the opportunity to contribute discretionary effort is the central feature of a high-performance work system."

The researchers found that workers in more participatory work systems in apparel and steel received more formal and informal training than those in traditional settings.

"Thus, employers in apparel and steel relied on formal company training to prepare workers to work in high performance systems."

On the other hand, "managers in medical and imaging tended to use workers with a higher level of formal education, especially college graduates."

The researchers concluded, "Workers employed in environments that have more high-performance practices earn more than those in traditional workplaces-even after they controlled for personal characteristics such as gender, race, education, experience, and tenure." There was a weaker earnings effect for medical electronics because of the stronger relationship between formal education and high-performance systems in that industry.

"But it is important to emphasize," they added, "that characteristics that enhance productivity in a high-performance system may differ from those that improve productivity in a traditional system. Indeed, our analytical framework is based on the idea that high-performance work systems give workers the opportunity to use creativity, imagination, and problem-solving abilities, while in traditional systems the use of these characteristics is discouraged or, at best, not expected."

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