ALBERT

Notes: The effects of individual economic incentives are modified by social interactions among cooperating members of an organization such as the firm. An economic theory of such interaction, based on individual rationality or utility maximization, is briefly outlined, and various hypotheses on the effects of profit-sharing, piece-rates, and employee participation in decision-making are derived. These hypotheses are tested on data collected from smaller West German firms with various participation and profit-sharing schemes, independent of legal co-determination requirements. The predicted positive effect of participation, and of profit-sharing combined with participation on productivity is confirmed, in contrast to received theory.

Notes: Attempts to explain the higher wages associated with unionization as efficiency effects from formalized ‘voice’ institutions have failed to explain why competent managers cannot institute efficient communication and participation without the many constraints imposed by union rules and formal collective bargains. Both American evidence and a simultaneous model estimated with data from the German metal industries are more consistent with our ‘managerial pressure’ theory, in which unionization responds to harder work to obtain compensating differentials. The powerful voice of German works councils does not enhance productivity or wages in our sample. Unqualified efficiency-voice effects are implausible.〈section xml:id="abs1-2"〉〈title type="main"〉ZUSAMMENFASSUNGTheoretische und empirische Untersuchungen aus den USA sehen in der gewerk-schaftlichen Organisation entweder eine reine Umverteilungsstrategie mit negativen Auswirkungen auf die gesellschaftliche Effizienz oder die Möglichkeit, mittels einer “voice”-Institution die Produktivität einer Organisation zu erhöhen. Der exit-voice-Theorie ist es allerdings nicht gelungen zu erklären, wieso fähige Manager nicht von sich aus ein wirksames Kommunikationssystem und Mitspracherechte von Arbeit-nehmern entwickeln, ohne die Restriktionen aus formalen Verhandlungen und durch Gewerkschaften befürchten zu müssen. Hier wird eine dritte Theorie dargelegt, derzufolge sich gewerkschaftliche Organisation als Folge von hohem Arbeitsdruck entwickelt, der vom Management ausgeübt wird. Die Arbeitnehmer reagieren mit einer Organisierung auf belastende Arbeitsbedingungen, um einen finanziellen Aus-gleich zu erhalten, oder um diese Arbeitsbedingungen verändern zu können. Empirische Evidenz für diese Theorie lässt sich mit Hilfe von Daten deutscher Unternehmen finden. Auf betrieblicher Ebene ist in Deutschland der Betriebsrat eine wesentlich mächtigere Institution als die Gewerkschaft. Es lässt sich jedoch keinerlei Evidenz für eine Tendenz zur Produktivitätssteigerung oder Lohnerhöhung durch die Existenz eines Betriebsrates finden. Die von FREEMAN und MEDOFF entwickelte Theorie der produktivitätssteigernden Wirkung einer Vertretung von Arbeitnehmerrechten durch eine formale Organisation kann nicht bestätigt werden.〈section xml:id="abs1-3"〉〈title type="main"〉RÉSUMÉDes enquětes théoriques et empiriques faites aux Etats-Unis considèrent ľorganisa-tion syndicale soit comme une pure stratégie de redistribution qui a des effets négatifs sur ľefficacité sociale, soit comme un moyen ďaugmenter la productivityéďune organisation par voie ďune institution “voice”, c'est-à-dire une institution pour ľéchange ďopinions. La théorie “exit-voice” n'a pourtant pas réussi à expliquer pourquoi des cadres habiles ne développent pas eux-měmes de système de communication et de participation pour les employés, ce qui leur épargnerait les restrictions qui résultent de négotiations formelles ou de pressions syndicales. Nous développons ici une troisième théorie selon laquelle ľorganisation syndicale est le résultat ďune forte pression de travail exercée par les cadres. Les employés réagissent aux conditions de travail opprimantes en s'organisant pour obtenir un dédommagement financier ou une modification des conditions de travail. Ľévidence empirique de cette théorie est consoledée par des données ďentreprises allemandes. Au niveau de ľentreprise měme le conseil ďentreprise (Betriebsrat) est une institution beaucoup plus puissante que le syndicat. Cependant, nous ne pouvons pas mettre en évidence que ľexistence ďun conseil ďentreprise tend à augmenter la productivityé. La théorie développée par FREEMAN et MEDOFF selon laquelle une représentation formelle des droits des employés a un effet positif sur la productivityé, ne peut pas ětre confirmée.

Notes: Policy conclusions This essay has covered several areas which are not usually regarded as closely interrelated. Policy conclusions have been discussed briefly at various points, and will now be developed more fully in this final section. As evidence for the interrelatedness of such disparate fields as corporate finance and employment policy, we start from the observation that many large firms are relatively inefficient, particularly at product innovation and flexible organization and employment policies, in part because top managerial compensation depends mainly on size. This creates an incentive for excessive growth and ‘empire building’, rather than payment to shareholders of the ‘free cash flow’ which cannot be profitably invested internally. More appropriate incentives for top management would increase dividend payments, and hence the flow of funds into the capital market available for financing new start-ups and small firms as venture capital. Even in the U.S. the cost of obtaining external capital often constrains small firms to invest only their internal cash flow (Fazzari et al., 1988). Increased entry of new firms would also be encouraged by labour market flexibility and deregulation, as well as reduction of excessive state subsidies and other support for large existing corporations. Enlargement of the small firm sector, in turn, would enhance competition, increase the overall rate of return on capital, and above all expand employment, following experience in the U.S. An exclusive focus of employment policy on aggregate demand or on wages and the labour market will thus miss important avenues through which welfare, competitivity and employment can all be influenced simultaneously without additional public expenditure (FitzRoy, 1989). The integrated view espoused here is also important in assessing the consequences of removing direct barriers to trade within the EC by 1992. Much official thought assumes that competitiveness and efficiency will automatically be increased by these developments, with consequent employment gains to follow. However, as usual in economics, there are countervailing tendencies which deserve emphasis (Kay, 1989). In particular, liberalization of capital markets without improvement of the incentives provided to top management of large corporations is likely to generate a substantial increase of takeover activity. The experience in the U.S. in recent years summarized above casts doubt on the efficiency-enhancing effects of unrestricted takeovers. Pursuit of speculative capital gains, insider trading, which is scarcely sanctioned in many contexts in Europe, and excessive growth by the manager of ‘free cash flows’ are likely results. The LBO operations which are most likely to increase efficiency are inhibited in Europe by the risk-aversion of senior managers. Top-heavy conglomerates, ultimately increased market power, and negative effects on employment, and consumer welfare are by no means implausible unless policy makers abandon their cherished but unrealistic faith in economies of scale, and institute a throughoing reversal of current policy towards large firms, preferably coupled with support for venture capital for new start-ups and small firms. Tax policy is a traditional method for achieving specific allocative goals, but one which is currently providing perverse rather than positive incentives for employment growth. The rapid increase of non-wage labour costs in the form of payroll and other related taxes, largely to fund a pay-as-you-go system of social security benefits, represents a tax on employment which accelerates the substitution of labour by capital equipment. The major obstacle to replacing these perverse taxes by less distorting consumption or value-added taxes (VAT) is the distributive consequence of such change. Similar arguments are advanced against abolition of the double taxation of dividends, which encourages wasteful investment by large corporations, and against introduction of urgently needed environmental taxes on energy use and toxic emissions. A simplified ‘negative income tax’ or support for low income recipients would in fact remove the hardship from the redistributive consequences of tax reform, but the political obstacles seem to be currently insurmountable. At the very least, however, these problems deserve much more intensive discussion and wider recognition than they have hitherto received. A major extension of adult retraining schemes following the example of Sweden seems to be the policy measure with the highest chances of realization, in part because the direct costs in the short run are relatively small, and also involve job creation. Removal of tax penalties for part-time work should also be feasible without substantial distributive effects, and would represent a first step towards general flexibility of working according to individual preferences. Clearly the state sector, still a major employer, could usefully lead the way instead of generally lagging behind the private sector. Overcoming ideological and sectarian opposition by organized labour leaders offers a challenge to public authorities and educational channels. A move to more flexible, decentralized wage bargaining and deregulation of the more archaic institutions of labour markets to facilitate entry by the self-employed and new firms should arguably be the ultimate goal for policy towards noninflationary full employment. While benefits from centralized or ‘corporatist’ bargaining structures are sometimes claimed, the importance of new firm entry for employment and competition would appear to shift the weight of the evidence in favour of decentralization. However the political obstacles in most European countries are formidable, and promise only glacially slow progress. In view of evidence for failure of the capital market for small business in the U.S. noted above, a case could be made for state support and extension of the much less developed European venture capital market. Existing state grants and other systems, designed to encourage new investment and employment, are usually too cumbersome and bureaucratic. The paperwork involved often represents a major deterrent for small enterprises or new start-ups, and the time lags involved are particularly damaging to high-tech prospects where new ideas can quickly become obsolescent. It is quite conceivable that state funded venture capital suppliers, efficiently organized as independent local units, could develop into profitable going concerns able to repay their loan capital in the long run. To maximize the employment impact it is important to go beyond high tech, and offer funds in any promising service or manufacturing area, according to the available expertise of specialized personnel and institutions. A precondition for success is that staff should be profit sharing professionals rather than salaried civil servants. Similarly, employees should be encouraged to accept shares in future profits rather than initially high wages, to reduce the liquidity constraints on new businesses. It has been argued here that employment and industrial policy are closely interrelated, and should thus be coordinated in the light of recent research in these fields. This requires both academics and policy makers to cross conventional boundaries and take a broader view of the economy than is customary under the specialization that severely restricts much of the relevant debate. Current piecemeal policies, even with the help of the longest postwar boom, have hardly dented the problem of long run unemployment to date, and are unlikely to do so after 1992 without fundamental reorientation.