British Journal of Industrial Relations 49:4 December 2011 0007 1080 pp. 688 716 doi: 10.1111/j.1467-8543.2010.00838.x The Decentralization of Decision Making and Employee Involvement within the Workplace: Evidence from Four Establishment Datasetsbjir_838 688..716 Cindy Zoghi and Robert D. Mohr Abstract Participatory work practices, like teams, quality circles and joint consultative committees (JCCs) can, but do not necessarily, decentralize decision making and increase worker autonomy. We use broad, cross-sectional establishment data from the European Union and three Commonwealth countries to measure the extent of decision making by workers across these countries, and to analyse how this measure varies with the use of participatory practices. Within Europe, workers in Sweden, Germany, France, the Netherlands and Ireland are most likely to be given the authority to make decisions. In Spain, Portugal and Italy, decentralized decision making is more unusual. While decision making is generally higher in establishments with teams, JCCs and quality circles, this result does not hold across all countries. Even where the relationships are significant, use of participatory practices explains a surprisingly small amount of the overall variation in decision making. 1. Introduction In a small sole proprietorship, the entrepreneur knows the details of the business and makes decisions alone. As the size and scope of the business grow, however, it becomes increasingly difficult to possess and process all the relevant information and to make decisions. One solution to this problem is to allow those in possession of the relevant knowledge to make decisions. Such decentralized decision making has a cost; the objectives of those with the knowledge do not necessarily align with the objectives of the organization. Results and conclusions expressed here are those of the authors and have not been endorsed by the Bureau of Labor Statistics or the US Department of Labor. Cindy Zoghi is at Bureau of Labor Statistics, Division of Productivity Research. Robert D. Mohr is at the University of New Hampshire, Whittemore School of Business and Economics. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
Decentralization and Employee Involvement 689 To facilitate decentralized decision making, companies sometimes turn to employee involvement using work practices like teams, quality circles or joint consultative committees (JCCs). As the term involvement suggests, such systems can empower workers to influence or make certain decisions, and researchers may consider these practices as proxies for characteristics like decentralized responsibility and autonomy (Handel and Levine 2006). However, employee involvement might be implemented only very narrowly, or restrict worker involvement to an advisory rather than decision-making role. Some critics even argue that such practices are merely tools for increasing job intensity and alternative mechanisms for organizational control, resulting in less decision-making autonomy for workers (e.g. Parker and Slaughter 1988). Therefore, involvement practices may not correlate to broad measures of decentralized decision making. This article is a largely descriptive exploration of the relationship between the use of high-involvement work practices and decentralized decision making in Europe, Australia and Canada. Using four large, establishment-level datasets, we distinguish measures of decentralized decision making from measures describing participatory work practices. 1 Although a large body of empirical research focuses on either decentralization or workplace organization, this study differs from the prior work by focusing on information about who makes particular decisions, which we use to measure decentralized decision making. Such information is ordinarily not the focus of studies that use larger cross-sectional datasets. Instead, researchers have typically either used measures of workplace organization or an aggregate measure at the establishment level (Colombo and Delmastro 2004; Kanamori and Motohashi 2006). This article focuses on decentralized decision making at a deeper level by identifying decisions delegated to individual workers or to teams of workers. Beyond this, we have two rationales for such an exploratory analysis. The first is to analyse to what extent participatory practices can serve as proxies for decentralized decision making. Human resource practices may be used for a number of reasons other than giving workers more control over work, for example increasing motivation or commitment, affecting job satisfaction or even inducing innovations (Godard 2004; Handel and Levine 2006; Mohr and Zoghi 2008; Zoghi et al. 2010). We use several approaches to identify the degree of correlation between these measures. The second rationale is to check the robustness of results across countries, since the operational definitions of these organizational tools may differ dramatically by establishment and country. We investigate differences across countries and ask if cultural and institutional features inform our understanding of these differences. We start with a single dataset that surveys European establishments in many countries. We then supplement this analysis with specific datasets for three Commonwealth countries: Great Britain, Australia and Canada. Based on differences in culture and systems of industrial relations, we might expect differences for particular groups of countries. If we observe similar results with different measures across various places and times, the results are robust. We show that while participatory practices generally associate
690 British Journal of Industrial Relations positively with decentralized decision making, the relationship varies significantly across countries. The association with the use or introduction of teams is often statistically insignificant. Overall, work practices account for a surprisingly small proportion of the variation in actual decision making, which suggests that they are imperfect proxies. 2. Involvement, incentive pay and decentralized decision making A large literature studies involvement, or high-performance human resource practices. Unfortunately, these terms are not defined consistently. Handel and Levine (2006: 74) provide what they describe as a consensus definition: employee involvement practices include job rotation, quality circles, self-directed teams, and most implementations of total quality management. Others argue that organizational practices, like those focused on knowledge or skill acquisition (Wood and Bryson 2009), should also be included, and that effective use of human resource practices requires bundling practices in a synergistic way (e.g. Becker et al. 1997; Huselid 1995; MacDuffie 1995). Therefore, the correct definition of involvement depends not so much on the individual practices employed, but on how they are combined. One logical bundle would combine incentive pay based on group output with workplace practices to align the interests of the principal and the agents. However, the empirical literature that explores this topic has mixed results. Marsden and Belfield (2010) find a positive association between merit pay and work autonomy, but an insignificant regression coefficient for profit sharing among French firms. In Britain (2004 WERS), they observe the opposite pattern. Hempell and Zwick (2005) find a positive relationship between functional flexibility, which includes decentralized decision making, and incentive pay in Germany. Regardless of how involvement (or high performance) is defined, most studies find that these practices support stronger economic performance for firms (see Black and Lynch 2001 or Ichniowski and Shaw 2003). Much of the literature therefore focuses on reasons that involvement might be associated with economic performance. One hypothesis is that workplace practices are used to grant decision-making authority to employees. Doing so allows firms to benefit from specific knowledge held by workers, and to adjust more rapidly to changing market conditions (see Mookherjee 2006 for a survey of the theoretical literature). This hypothesis assumes that the use of particular work practices means that decisions are in fact decentralized to workers. The empirical literature on decentralized decision making (and autonomy) is much smaller than the literature on human resource practices. Early work in this area was based on case studies or data collected from interviews (e.g. Child 1972; Pugh 1976; Pugh and Hinings 1976). Several cross-sectional studies use aggregate measures at the establishment level, like the degree that plant managers in a multi-establishment firm are given decision-authority
Decentralization and Employee Involvement 691 (Colombo and Delmastro 2004; Kanamori and Motohashi 2006). Few studies measure the delegation of decisions to workers or the degree that such measures correlate to work practices. Bresnahan et al. (2002) identify a measure of work reorganization that indicates a decentralization of decision authority as part of an investigation on productivity. Colombo et al. (2007) interact a measure of decentralized decision making with work practices, and find that the combination has a positive effect on profitability. Delbridge and Whitfield (2001) and DeVaro (2006, 2008) use the Workplace Employment Relations Survey to relate specific workplace practices and narrowly defined measures of decision-making authority. 2 That survey and those specific measures are incorporated here as well. 3. Sources of data Four establishment-level datasets provide rich detail about the use of participatory work practices, the location of decision making and relevant establishment characteristics. The first dataset, the European Foundation for Improvement of Living and Working Condition s survey on Employee Direct Participation in Organizational Change (EPOC), spans 10 European countries. The remaining three datasets focus on Commonwealth Countries: the British Workplace Employment Relations Survey (WERS), the Australian Workplace Industrial Relations Survey (AWIRS) and the Canadian Workplace and Employee Survey (WES). For the three country-specific sources, establishment data are gathered through a face-to-face interview with the senior person responsible for industrial relations. The EPOC is a postal survey. The 1996 EPOC focuses specifically on individual and group participation in the establishment via consultation and decision making (European Foundation for the Improvement of Living and Working Conditions 1997). The sample is limited to establishments with more than 20 workers for small countries (Denmark, Ireland, the Netherlands, Portugal and Sweden) or 50 workers for large countries (France, Germany, Italy, Spain and the UK). 3 We use all 3,851 non-public establishments with complete information on the variables in the dataset. The 1998 WERS includes a sample of 2,191 establishments drawn from the underlying population of all British establishments with at least 10 employees. To make the data more comparable with the other datasets, we restrict the sample to the 1,192 non-public trading establishments with at least 20 employees and complete data. The survey asks detailed questions about the structure of the organization, participation in decision making by workers, union membership and the use of specific workplace practices for the employees in the establishment s largest occupation group. An employee survey, which is given to a sample of workers at each establishment in the WERS, asks about worker autonomy as well. Since many of the establishment survey questions pertain to practices as they affect the largest occupation group, we
692 British Journal of Industrial Relations limit ourselves in the employee survey to those in the largest occupation group, which produces a sample of 3,767 workers. Similar questions were asked in the AWIRS. The 1995 sample consists of 2,001 establishments with 20 or more employees, in all industries except agriculture, forestry and fishing. Excluding public and other non-commercial establishments allows us to observe 1,137 establishments with complete data. Similar to the WERS, data were also collected from workers at these establishments; we use the over 6,000 workers who belong to the largest occupation group. The 1999 WES, conducted by Statistics Canada, asks about decision making and workplace practices of all establishments with at least 10 employees. Respondents were asked about who makes a number of specific decisions. Our sample of around 2,400 establishments is drawn from a stratified sample of all non-public Canadian establishments with 20 or more employees. Although the Canadian WES includes an employee survey, we do not use it, since no questions were asked about decision making. All four datasets include survey weights that we use in both the descriptive statistics and estimations. 4. Country backgrounds Although we cannot provide detailed backgrounds of each of the 12 countries covered in this study, it is worthwhile to consider some characteristics, such as cultural factors or systems of collective bargaining, that might affect the use of workplace practices and their association with decentralized decision making. We start with the countries in the EPOC data, and identify factors that we expect will reveal systematic differences within and across countries. We then discuss the Commonwealth countries in three additional datasets. The countries in the EPOC data include two English-speaking countries (UK and Ireland), two Scandinavian countries (Sweden and Denmark), two countries with Christian-Democratic traditions (the Netherlands and Germany) and four Mediterranean countries (France, Spain, Portugal and Italy). 4 Collectively, these groups of countries represent different forms of labour relations. The English-speaking countries are often seen as examples of liberal market economies. Scandinavia has a reputation for using learningoriented forms of work and granting autonomy (Gustavsen 2007). The Christian-Democratic states are characterized by low union density, but high bargaining coverage. The Mediterranean countries have received less study, but are sometimes characterized as having systems with authoritarian employers and politicized and divided trade unions (Hyman 1994). Workplace representation differs markedly across countries. Unions provide workers with a voice in decision making regardless of whether participatory practices are employed. Unions might resist the use of such practices, out of concern of becoming less relevant (Frost 2000). In Denmark and Sweden, unions are central to worker representation, and the local
Decentralization and Employee Involvement 693 union representative is typically the only channel for taking concerns to management. Denmark and Sweden do differ in that during the 1990s, Denmark had more industrial conflicts (measured in days lost to strikes). Germany and the Netherlands represent a form of workplace representation where works councils play a central role. These councils are not formally union bodies, although unions typically have a key function. The Mediterranean countries are diverse in their forms of workplace representation. France has a complex system where trade union delegates are key to employee representation, even in workplaces with low union densities. Italy uses a dual system of industry and company-level bargaining. In Spain, worker representation is typically through works councils, and unions typically dominate these. Portugal has weak systems of workplace representation, and works councils are rare. In the analysis using EPOC data, differences across countries will be captured in a vector of country-specific indicator variables. The institutional differences and information about labour relations allow us to make some hypotheses about how these indicator variables might relate to the decentralization of decision making. In countries likely to have more co-operative systems of industrial relations, like Sweden or the UK, we expect to see workplace practices used to decentralize decisions. In the Mediterranean countries, given cultures with more centralized power relationships (Hofstede 2001), and for some countries, weaker institutions for worker representation, we expect less use of participatory practices and less decentralized decision making. However, because this grouping of countries is very diverse France, for example has strong institutions for worker representation individual countries may differ significantly. Beyond studying the degree that cultures and institutions affect the decentralization of decisions, a second goal of this study is to check if results are robust. We want to see if the patterns observed in the EPOC can be replicated in other datasets, and also see if there are new patterns across the three additional datasets, which represent reasonably similar countries. Great Britain, Australia and Canada are three of the four largest English-speaking economies. All are part of the British Commonwealth. Culturally, they are similar (Hofstede 2001). There is widespread evidence that consistent with the US experience, the use of participatory workplace practices has increased significantly in all three countries since the 1970s. Table 1 shows descriptive statistics. The most striking difference between countries is the extent of union representation. This variation could affect the robustness of results if the presence of union affects the coefficients for other explanatory variables. Union representation is not measured identically across the datasets. 5 The EPOC and WES surveys ask whether any workers are covered by collective bargaining. In Canada, under 25 per cent of workplaces in our sample have covered workers, while in Europe, 75 per cent do. In the AWIRS and WERS, the questions refer to union membership not collective bargaining. Sixty-eight per cent of Australian establishments and 35 per cent of British establishments have workers who are members of a trade union. For
694 British Journal of Industrial Relations TABLE 1 Descriptive Statistics of Establishments EPOC EU EPOC UK only AWIRS Aus WERS Britain WES Canada Establishment age (years) 24.3 31.1 17.4 Establishment size (employees) 259.1 215.3 95.9 88.7 81.5 Has union members 0.68 0.35 Covered by collective bargaining 0.76 0.30 0.24 Has no competitors 0.03 0.01 0.02 0.04 0.19 Has few competitors 0.24 0.30 0.30 Is a non-profit 0.09 0.07 0.14 Is part of a multiplant firm 0.47 0.61 0.72 0.63 0.33 Demand is seasonal 0.33 0.41 Demand is volatile 0.24 0.19 Largest occupation group is 0.08 0.07 0.11 0.14 0.11 professionals a Largest occupation group is clerical a 0.10 0.09 0.08 0.12 0.10 Largest occupation group is sales a 0.16 0.17 0.31 0.30 0.11 Largest occupation group is precision 0.07 0.05 0.14 0.14 0.15 work a Largest occupation group is production a 0.49 0.46 0.36 0.33 0.53 Manufacturing 0.55 0.38 0.32 0.24 0.19 Construction 0.08 0.05 0.02 0.04 0.05 Wholesale/retail 0.21 0.40 0.47 0.43 0.44 Business services 0.09 0.12 0.10 0.15 0.17 Education and health 0.06 0.04 0.04 0.12 0.13 Other services 0.01 0.01 0.05 0.03 0.03 % Female workers 0.22 0.25 0.42 0.47 0.47 Number of observations 3,849 529 848 1,192 2,401 Size restriction 20/50 b 50 20 20 20 a These can add to more than 1.0 for the WERS because some workplaces had two (tied) occupation groups with the largest number of workers, and less than 1.0 for the EPOC due to missing observations. b In Ireland, Portugal, Denmark, the Netherlands and Sweden, workplaces with less than 20 employees were excluded, while in the rest the cut-off was 50. Population survey weights are used in all means. Rows 3 and higher identify the proportion of establishments with a particular characteristic. EPOC, Employee Direct Participation in Organizational Change; AWIRS, Australian Workplace Industrial Relations Survey; WERS, British Workplace Employment Relations Survey; WES, Canadian Workplace and Employee Survey. comparison, we include the EPOC results for the UK alone in the table as well; 30 per cent of UK establishments are covered by collective bargaining. Table 1 shows other establishment characteristics that could affect the link between the organization of work and decentralized decision making. Larger establishments, and those in multi-plant organizations, generally have more hierarchical levels, which may make decentralizing some decisions more advantageous. Yet Ortega (2004) finds that larger organizations have more centralized decision making. More competitive markets require organizations to respond to demand and supply changes quickly, increasing the cost of delay. The delegation of decision making to workers may be more advantageous when the workforce is highly skilled. It may also be easier to decentralize workers in particular sectors. For example, in the service industries,
Decentralization and Employee Involvement 695 workers deal more directly with the customers, and may need to have more autonomy in order to respond quickly to customer needs. For several establishment characteristics, the EPOC countries differ markedly from the other three datasets. In the EPOC establishments, only 22 per cent percent of the workforce is female, while in Australia, Canada and Britain, close to half the workforce is female. Additionally, EPOC establishments are larger, with over 250 workers per establishment compared with 100 or fewer in the other three datasets. 6 The demographic differences of Table 1 point to lower worker participation in the EPOC countries than in the other three datasets. The relative supply of skilled workers varies considerably across countries as well. Almost a third of all workers in the AWIRS data are in the professional occupations; less than half as many are professionals in the WERS, WES and EPOC, the least being in the EPOC. Twenty per cent of establishments in the Canadian survey are in service industries, while 18 per cent are in Britain, 17 per cent are in Australia and only 10 per cent are in the EPOC countries. These numbers do not reflect service industry numbers for the countries as a whole, as they are partially driven by the restrictions on establishment size imposed on the data. As a check of the design of the EPOC data, we compare the characteristics of establishments in the UK EPOC sample to the WERS. The occupational and industrial distributions favour production workers in manufacturing in the EPOC more than in the WERS; this is likely due to the inclusion of smaller establishments in the WERS. Most other numbers are similar between the two datasets. One exception is the percentage of female workers in the establishment, which is much lower in the EPOC. Although this is partly due to the heavier influence of manufacturing production jobs, the EPOC figure seems unusually low; the female employment rate for 1996 was around 65 per cent (Duffield 2002). 5. Measures of participatory practices and worker decision making Workplace Practices Our data analysis focuses on comparing indirect measures of employee autonomy use of involvement practices to direct measures of employee decision making. We start with involvement practices. Because we work with different datasets that define measures differently, our analysis focuses narrowly on teams, quality circles and joint consultative committees. Therefore, our results reflect associations only with a partial list of the core practices typically used to define high-involvement workplaces. The definition of teams varies considerably across the datasets. The EPOC does not ask about the current existence of teams, only the installation in the past three years of team-based work organization. The WERS refers to formally designated teams, which we further restrict to teams that jointly decide how to work is to be done. This restriction matches well to the AWIRS, which measures the use of semi-autonomous (i.e. self-supervising)
696 British Journal of Industrial Relations groups, and the WES, which refers to self-directed workgroups [or] semiautonomous work groups, mini-enterprise work groups that have a high level of responsibility for a wide range of decisions/issues. Since these definitions of teams specify autonomy, it is almost tautological that they should associate with decentralization. The definitions of quality circles and joint consultative committees also reflect differences across the datasets. The EPOC describes these two forms of workplace organization, respectively, as groups with a specific task, on an ongoing basis (i.e. quality circles) and consultative groups with a specific task, on a temporary basis. 7 The WERS describes consultative committees as committees of managers and employees...primarily concerned with consultation... called joint consultative committees, works councils or representative forums. The WERS describes quality circles as groups that solve specific problems or discuss aspects of performance or quality...known as quality circles or problem-solving groups or continuous improvement groups. The AWIRS definitions of quality circles and consultative committees are similar to those in the WERS, asking specifically whether quality circles or joint consultative committees are currently in place at the workplace. Joint consultative committees (JCCs) are committees of managers and employees...primarily concerned with consultation...called joint consultative committees, works councils or representative forums. Finally, in the WES, quality circles are called problem solving teams... limited to specific areas such as quality or work flow (i.e. narrower range of responsibilities than self-directed work groups), while JCCs are non-legislated joint labour-management committees and task teams that generally cover a broad range of issues, yet tend to be consultative in nature. There is a large literature on incentive pay schemes (see Ichniowski and Shaw 2003 for a survey) and how such schemes affect the adoption of participatory workplace practices. Much of this literature focuses on the fact that the workers who make decisions might have different objectives than the managers or owners of the firm. Given evidence that human resource practices are bundled synergistically (Becker et al. 1997; Huselid 1995; MacDuffie 1995), incentive pay based on group output might be bundled with workplace practices to reduce these agency costs. Therefore, we interact various incentive pay schemes with participatory work practices in our analysis. Table 2 presents the proportion of establishments that report using these core employee involvement practices, as well as key forms of incentive pay. Although teams, quality circles and joint consultative committees are widespread in almost all countries, the mix of practices used differs substantially. Among the EPOC countries, which are most amenable to comparison, teams are common in the UK, Spain and Denmark, which is broadly consistent with the group of countries with cultural factors tending to decentralization. 8 Italy and France make greater use of JCCs, while lesser use of JCCs in Spain and Portugal indicates a significant heterogeneity among the Mediterranean countries. The UK, France and the Netherlands are most likely to use quality circles, while Italy and Australia are least likely. In Australia and Canada,
Decentralization and Employee Involvement 697 TABLE 2 The Use of Participatory Workplace Practices by Country Teams JCC Quality circles Individual incentive pay Group incentive pay Profit sharing Australia AWIRS (n = 848) 0.43 0.29 0.16 0.33 0.23 0.07 British WERS (n = 1,192) 0.46 0.27 0.36 0.13 0.09 0.35 Canada WES (n = 2,401) 0.13 0.28 0.32 0.35 0.11 0.12 EU EPOC (n = 3,849) 0.27 0.33 0.31 0.23 0.21 0.24 Denmark (n = 358) 0.34 0.27 0.23 0.12 0.25 0.09 France (n = 405) 0.29 0.38 0.35 0.15 0.13 0.52 Germany (n = 545) 0.19 0.28 0.34 0.34 0.17 0.14 Ireland (n = 241) 0.22 0.33 0.23 0.15 0.25 0.08 Italy (n = 373) 0.27 0.46 0.20 0.20 0.35 0.05 Netherlands (n = 433) 0.08 0.27 0.37 0.11 0.10 0.14 Portugal (n = 191) 0.21 0.19 0.17 0.17 0.07 0.06 Spain (n = 323) 0.35 0.25 0.20 0.26 0.20 0.10 Sweden (n = 451) 0.21 0.33 0.26 0.10 0.33 0.20 UK (n = 529) 0.36 0.33 0.43 0.24 0.26 0.43 Values in each row show the proportion of establishments using a given participatory practice. For the EPOC, teams is a measure of the installation in the past three years of team-based work organization, and joint consultative committees (JCCs) are specifically temporary committees. EPOC, Employee Direct Participation in Organizational Change; AWIRS, Australian Workplace Industrial Relations Survey; WERS, British Workplace Employment Relations Survey; WES, Canadian Workplace and Employee Survey. individual incentive pay is the most common form. In Britain, profit sharing is more common, with 35 per cent of non-managerial workers receiving profit-related pay. In the EPOC, incentive pay is equally distributed among individual incentive pay, group incentive pay and profit sharing. The final three columns highlight the correlation between participatory workplace practices and incentive pay. In countries where a high proportion of establishments use participatory practices, establishments are also likely to employ group incentive pay. This is not generally true for individual incentive pay, however. In countries like Sweden, Denmark, or the Netherlands, where participatory practices are common, individual incentive pay schemes are rare. Decentralized Decision Making To better understand whether participatory workplace practices proxy for decentralized decision making in establishments, we identify specific questions in each dataset that ask directly about decision-making processes. Supporting Information Tables S1a d document the decision-making questions and response rates for each survey. The datasets collectively contain unusually detailed information about different forms of decision-making authority that workers may possess, ranging from broad indicators of employee discretion and involvement with changes to very specific questions on deciding about staffing, training, technology and planning of work. We organize the questions into three types: individual worker decision making as
698 British Journal of Industrial Relations reported by management, work-group decision making as reported by management, and individual decision making as reported by the employees in the largest occupation group themselves. Despite the widespread use of participatory practices in these workplaces, those with significantly decentralized decision-making processes remain in the minority. Neither the AWIRS nor the WERS contain examples where the majority of establishments indicate giving workers a lot of influence or discretion over a particular decision. The most decentralized decisions are those relating to the planning and pace of work. The least decentralized decisions are those that relate to production issues (including production technology) and work practices. The EPOC and WERS indicate that individual workers have greater autonomy than work-groups. The employee surveys in the WERS and AWIRS indicate that the workers themselves largely estimate the extent and nature of employee decision making similarly to management. Data from the EPOC and WERS highlight the difference between measuring a specific human resource practice the use of teams and focusing directly on decentralized decision making. Only 10 per cent of establishments in the WERS and 18 per cent in the EPOC report that teams of workers are allowed to select their own leader. 9 The Supporting Information tables jointly suggest that although managers may have adopted participatory practices, their adoption has not always increased employee autonomy. According to a survey question in the WERS, nearly 60 per cent of managers still feel that those at the top are best placed to make decisions about this workplace. To simplify the remainder of the analysis, we aggregate these multiple decision-making questions into three non-overlapping indices: one of questions about individual workers from management surveys, one of questions about work-group decisions from management surveys, and one of questions from employee surveys. Each variable is normalized to lie between zero and one, where one is the value when the response indicates the most decentralized decision-making option, and zero when it indicates the least. For example, the question How much influence do most workers have over how work is allocated to them? is coded None = 0, Some = 1/3, A little = 2/3, and A lot = 1. 10 The normalized variables are then averaged over all variables in the index that were answered by the establishment. The index is the average value of only questions that are applicable to the establishment. In order to avoid creating a correlation between JCCs and the work-group decision index for example, the questions pertaining to JCC influence do not count in the index for establishments without JCCs. The index would then be averaged only over the remaining questions that are not related to JCCs. A similar procedure is followed for establishments that do not have teams, as well as for those that did not have an organizational change. The mean values of the indices (normalized to be between zero and one) are shown in the first column of Table 3. Since indices are not directly
Decentralization and Employee Involvement 699 TABLE 3 Indexes of Decision Rights, by Use of Participatory Practices All Establishments with Teams No teams JCCs No JCCs Quality circles No quality circles I. Worker decision-making index, according to management Australia (n = 848) 0.521 0.554*** 0.495 0.533 0.515 0.564*** 0.512 UK-WERS (n = 1,192) 0.479 0.551*** 0.418 0.514* 0.467 0.513** 0.461 Canada (n = 2,401) 0.169 0.193 0.166 0.196* 0.159 0.212** 0.149 European Union (n = 3,849) 0.216 0.245** 0.206 0.274*** 0.188 0.308*** 0.175 Denmark (n = 358) 0.208 0.263** 0.180 0.309*** 0.171 0.289** 0.183 France (n = 405) 0.234 0.271 0.219 0.262 0.216 0.266 0.216 Germany (n = 545) 0.278 0.342** 0.263 0.369*** 0.242 0.388*** 0.222 Ireland (n = 241) 0.261 0.248 0.265 0.264 0.260 0.334 0.239 Italy (n = 373) 0.147 0.181 0.135 0.176* 0.123 0.239*** 0.124 Netherlands (n = 433) 0.258 0.360* 0.250 0.376*** 0.216 0.376*** 0.189 Portugal (n = 191) 0.094 0.077 0.099 0.265*** 0.054 0.210 0.070 Spain (n = 323) 0.142 0.133 0.147 0.183 0.129 0.215** 0.124 Sweden (n = 451) 0.276 0.340* 0.259 0.362*** 0.235 0.338** 0.255 UK (n = 529) 0.216 0.258 0.192 0.305*** 0.172 0.294*** 0.157 II. Work-group decision-making index, according to management UK-WERS (n = 786) 0.252 0.213*** 0.401 0.357*** 0.162 0.268 0.240 Canada (n = 2401) 0.074 0.116*** 0.068 0.102** 0.063 0.123*** 0.050 European Union (n = 3,849) 0.136 0.194*** 0.115 0.188*** 0.110 0.233*** 0.092 Denmark (n = 358) 0.079 0.134*** 0.051 0.133** 0.058 0.130** 0.063 France (n = 405) 0.182 0.235 0.160 0.194 0.174 0.260*** 0.140 Germany (n = 545) 0.139 0.229*** 0.119 0.245*** 0.098 0.240*** 0.089 Ireland (n = 241) 0.180 0.202 0.174 0.300*** 0.121 0.209 0.171 Italy (n = 373) 0.098 0.148* 0.079 0.109 0.089 0.219*** 0.067 Netherlands (n = 433) 0.181 0.355*** 0.167 0.291*** 0.141 0.251*** 0.140 Portugal (n = 191) 0.084 0.117 0.076 0.259*** 0.044 0.224** 0.056 Spain (n = 323) 0.035 0.046 0.030 0.041 0.034 0.085** 0.023 Sweden (n = 451) 0.247 0.411*** 0.203 0.396*** 0.174 0.355*** 0.209 UK (n = 529) 0.156 0.227*** 0.116 0.215* 0.127 0.238*** 0.094 Worker decision-making index, according to employees Australia (n = 4,234) 0.466 0.487*** 0.451 0.458 0.472 0.494*** 0.459 UK (n = 3,767) 0.633 0.651*** 0.618 0.646** 0.622 0.628 0.640 For columns two and higher, each value shows the mean value of the decision-making index for establishments with or without a given participatory practice. Significance levels between those establishments with and without the practice: *** p < 0.01, ** p < 0.05, * p < 0.1. Index values are normalized to a range between zero and one. JCC, joint consultative committee; WERS, British Workplace Employment Relations Survey.
700 British Journal of Industrial Relations comparable across datasets, we are reluctant to draw conclusions based on the differences between the three Commonwealth datasets. However, the European survey does allow for cross-country comparisons. Sweden which has a history of supporting and funding programmes to support the Scandinavian model of work organization (Gustavsen 2007), scores highest for decision making. Spain, Italy and Portugal have quite low amounts of decision making. This is consistent with our hypotheses, as well as prior characterizations of the Mediterranean model. The individual worker indices are not directly comparable with the workgroup indices, even within the same dataset, because the questions used to derive the indices are not the same. However, rank order correlations indicate that in the EPOC, establishments with greater worker decision making than other comparable establishments also have greater work-group decision making. In the WERS, there is only a very low correlation between the two indices. The remaining six columns of the table explore the correlation between decision-making and participatory workplace practices. Each column recalculates the decision-making index for firms that do (or do not) use a particular workplace practice. Asterisks (**) indicate a value that is statistically significantly different from the corresponding sub-sample that does not use the workplace practice. While the relationship is almost uniformly positive workplace practices are associated with decentralized decision making there are differences across work practices and countries. Not surprisingly, teams are used to delegate decisions to work-groups. However, in all but the Canadian sample, individual workers also have greater autonomy in the presence of teams than without. Quality circles and JCCs correlate with differences in our measures of decentralized decision making, but there is considerable variation across countries. For example, in Portugal, the index for decisions made by workers is four to five times higher in establishments that use quality circles or JCCs than in those that do not; in France, the data show almost no statistically significant differences in decentralized decision making between establishments that use any of the participatory practices and those that don t. 6. Regression analysis To formally identify systematic differences across countries and test whether establishments that use participatory workplace practices have greater worker autonomy, we use an ordinary least squares regression analysis, with the decentralized decision-making indices as dependent variables. In all datasets, we include establishment characteristics: the age and size of the establishment, whether workers at the establishment are part of a union, whether the establishment is in a non-profit sector, whether the establishment is a monopoly or has only a few competitors, whether it is part of a multiplant firm, and a set of indicator variables for the establishment s largest
Decentralization and Employee Involvement 701 occupational group, and for whether the establishment is in the construction, wholesale/retail or service sectors (the excluded groups being establishments with many competitors, with the largest occupation group being professionals, and in manufacturing). 11 Additionally, we include measures of incentive pay being used in the workplace those based on individual performance, group performance (based on a work-group, workplace or entire organization) and profit sharing. We interact these incentive pay variables with teams, quality circles and JCCs, since such forms of pay, by better aligning workers interests with those of management, may be complementary to participatory work practices. We expect the interaction of non-individual incentive pay plans and participatory work practices to have a positive association with decentralized decision making. The hypothesis with respect to individual incentive pay is less clear. Piece rates are generally inconsistent with the use of teams, and therefore may limit the ability of workers to make decisions (Freeman and Kleiner 2005; Marsden and Belfield 2010). Finally, we test for the importance of bundles by replacing the individual practices with indicator variables for whether the establishment used one, two or all three of the practices. Because prior work suggests that involvement practices are complementary (Ichniowski et al. 1997; Laursen and Foss 2003), we expect the relationship between involvement and decentralized decisions to be stronger with more practices. Before reporting results, it is worth emphasizing that while regressions can indicate a correlation between decentralized decision making and employee involvement in a setting that controls for other important observable establishment characteristics, results should not be interpreted to indicate causality. Choices of workplace practices are likely to be endogenous to the choice of decision location. As an example, if we observe a positive relationship between decentralized decision making and profit sharing, we cannot know whether the profit-sharing plan is adopted in order to provide the right incentives to decision-making employees, or whether employees used their decision-making autonomy to obtain a profit-sharing plan. Our cross-sectional survey-based measures might suffer from omitted variable bias or method bias. For example, management style may simultaneously determine both practices and decentralized decision making. Certain managers might prefer particular workplace practices and also prefer to decentralize decision making. This does not necessarily mean the two are operationally linked. Method bias, which is a potential problem for the two indices based on managers responses, might reflect a bias of survey respondents a respondent who perceives her establishment as inclusive might indicate that the establishment uses both decentralized decision making and particular workplace practices. We can compare the results for worker decision making as reported by managers to the results for worker decision making as reported by employees. If these results differ, they raise the possibility of method bias.
702 British Journal of Industrial Relations Analysis of Country-Specific Factors Using the EPOC Data The first set of regressions use the EPOC data. Results are reported in Table 4. The left portion of the table (columns 1a 4a) uses the worker-specific decisionmaking index. The right portion of the table (columns 1b 4b) uses the group decision-making index. Columns 1a and 1b include only country indicator variables without any establishment characteristics. If there are any patterns across countries or groups of countries in terms of the degree that decisions are decentralized, they would be revealed in these first specifications. Sweden, the omitted country, has the most decentralized group index, and, along with Germany, has the most decentralized worker index. Establishments in the UK, Italy, Portugal, Denmark and Spain have significantly lower worker decision making than the omitted Sweden. For the group decision index, countries are sorted by the magnitude of the coefficients in column 1b. All countries other than Ireland have significantly lower decision making than Sweden. Linear tests of the coefficients indicate that France has significantly higher autonomy than the other Mediterranean countries. Having identified a pattern of country-level differences, we next turn to asking whether the use of practices like teams, quality circles, consultative committees or incentive pay schemes are associated with greater decision making by employees or work-groups. We include these measures in the next two columns (2a and 2b). Participatory practices do associate with decentralized decisions, especially at the group level. JCCs and quality circles have positive and significant coefficients for both decision indices. The measure of teams has a positive and significant coefficient for the group decision index. The link between decision making and incentive pay schemes is much more tenuous. Only group incentive pay is associated with group decision making. Columns 3a and 3b include interaction terms to explore the hypothesis that incentive pay only promotes decision making when paired with participatory practices. The coefficient estimates for interaction terms are all statistically insignificant. These columns also include various other workplace characteristics. The results (along with those in columns 2a and 2b) show that neither establishment characteristics nor workplace practices explain to any great degree the country-level differences. The coefficients on the country indicators are largely unchanged in their size, statistical significance or in their rankings across countries. Cultural and institutional differences matter directly, not just by increasing the use of participatory practices. Among the establishment characteristics that might vary systematically across countries, unionization, establishment size and monopoly power all negatively impact the degree of decentralization of decision making (at the 10 per cent significance level). Systematic differences in these variables do not explain the cross-country patterns, however, nor do they affect the correlation between workplace practices and decision making. Finally, the last column replaces teams, quality circles and JCCs with indicators for whether the establishment uses one, two or all three of these
Decentralization and Employee Involvement 703 TABLE 4 Determinants of Decision-Making Indexes in European Union EPOC Worker decision index (per mgmt) Group decision index (per mgmt) (1a) (2a) (3a) (4a) (1b) (2b) (3b) (4b) France -0.043-0.064** -0.072** -0.069** -0.065** -0.075** -0.074** -0.073*** Netherlands -0.018-0.019-0.039-0.027-0.066** -0.056** -0.047* -0.038 Ireland -0.015-0.010-0.022-0.019-0.067-0.060-0.046-0.042 UK -0.061** -0.090*** -0.111*** -0.114*** -0.091*** -0.117*** -0.095*** -0.091*** Germany 0.001-0.005-0.016-0.007-0.108*** -0.105*** -0.097*** -0.089*** Italy -0.129*** -0.134*** -0.127*** -0.130*** -0.149*** -0.154*** -0.151*** -0.151*** Portugal -0.182*** -0.157*** -0.154*** -0.155*** -0.163*** -0.130*** -0.128*** -0.127*** Denmark -0.069*** -0.060** -0.072*** -0.078*** -0.168*** -0.164*** -0.157*** -0.157*** Spain -0.135*** -0.124*** -0.113*** -0.124*** -0.212*** -0.201*** -0.192*** -0.191*** Teams 0.020 0.025 0.055*** 0.057*** JCC 0.084*** 0.071*** 0.061*** 0.072*** Quality circles 0.113*** 0.096*** 0.118*** 0.086*** Individ. incent. pay 0.022 0.010 0.016 0.002-0.010-0.004 Individual teams -0.031-0.022 Individual JCC -0.010 0.006 Individual circles 0.053 0.025 Group incent. pay 0.009-0.012 0.019 0.047*** 0.035 0.053*** Group teams -0.005-0.027 Group JCC 0.032 0.005 Group circles 0.051 0.071** Profit-sharing 0.020 0.037 0.027 0.003 0.007 0.010 Profit teams 0.002 0.011 Profit JCC 0.027-0.040 Profit circles -0.062 0.025 1 partic. pgm. 0.065*** 0.074*** 2 partic. pgms. 0.138*** 0.137*** 3 partic. pgms. 0.194*** 0.255***
704 British Journal of Industrial Relations Table 4 (contd) Worker decision index (per mgmt) Group decision index (per mgmt) (1a) (2a) (3a) (4a) (1b) (2b) (3b) (4b) Union -0.034** -0.036** 0.025* 0.023 Size/1,000-0.009** -0.008** -0.009*** -0.009*** Size 2 /10,000,000 0.001** 0.001** 0.001* 0.001** % Female -0.002-0.007 0.017 0.013 Monopoly -0.086* -0.084-0.056** -0.055** Non-profit 0.072** 0.072** 0.058** 0.056** Multi-plant -0.004-0.002-0.009-0.010 Construction 0.018 0.014 0.010 0.009 Wholesale/retail -0.012-0.017-0.004-0.001 Business services 0.077*** 0.076*** -0.003-0.006 Education and health -0.002-0.0005-0.050-0.041 Other services -0.006-0.004-0.077*** -0.072*** LOG: precis. crafts -0.052-0.055-0.013-0.013 LOG: sales 0.016 0.014-0.007-0.001 LOG: clerical -0.035-0.035-0.043-0.042 LOG: production -0.054* -0.057* -0.035-0.034 R 2 0.045 0.124 0.162 0.144 0.045 0.161 0.182 0.168 OLS estimation. Standard errors available upon request. The excluded groups are Sweden, LOG: professional, manufacturing. n = 3,849. Significance levels: *** p < 0.01, ** p < 0.05, * p < 0.1. EPOC, Employee Direct Participation in Organizational Change; JCC, joint consultative committee; LOG, largest occupation group.
Decentralization and Employee Involvement 705 practices. The more practices present, the greater the decentralization. These results suggest that workplace participatory practices, especially when bundled into groups of practices, can be used as proxies for decentralized decision making. Analysing the Robustness of Relationships Using Commonwealth Countries The remaining regressions serve as a robustness check for the results found in the EPOC data. The results of separate ordinary least squares estimations for each of the three remaining datasets are given in Tables 5 7. 12 In these tables, column 1 under each index type (identified with the column heading 1) shows the results on teams, JCCs, quality circles and measures of incentive pay without including any other controls, column 2 shows results on estimations that include interaction terms and a full set of control variables, and column 3 replaces the practices with indicators for the use of one, two or three practices. These comparisons show a number of patterns that are robust across datasets. Most importantly, participatory practices are broadly associated with the decentralization of decision making. When significant, the coefficients on teams, JCC, quality circles or a bundle of practices are nearly always positive. Bundles have some impact. In five of the seven estimations, the coefficient size increases as the number of practices increases. These differences are generally statistically significant. The Commonwealth countries also confirm another finding from the EPOC. Unobserved characteristics, partially captured as institutional or cultural difference in the EPOC, matter. Tables 5 7 show that workplace practices alone explain only a small proportion of the variation in decision making. The R 2 values for all the regressions that use only the core involvement measures (without controls) are extremely small, ranging from slightly over one per cent in both the AWIRS and WERS estimations of decision making according to employees, to 0.12 in the WERS estimation of worker decision making according to management. Thus, while participatory practices are correlated with decentralized decision making, they are imperfect proxies, since they explain only a small amount of the variation in such decision making. Finally, the Commonwealth countries indicate robust results in terms of establishment characteristics that explain decentralized decision making. The indicator variable for the presence of unionized employees is always either insignificant or negative. Consistent with our expectations, establishments with skilled workers, as proxied by the professional occupational group (the excluded group), tend to decentralize decisions more. The percentage of female workers is negative and significant in the AWIRS and in the worker decision-making index for the WERS at the five per cent level. In these countries, gender appears to affect the degree that decisions are delegated (independently of involvement practices).