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What Do Unions Do? Unionization, Work Innovations, and
Firm Performance in Jamaica
Gangaram Singh
San Diego State University
Noel Cowell
University of the West Indies
Abstract To respond to competition emanating from globalization,
many firms have adopted work innovations that are related to human resource
management (job analysis, employment tests, performance appraisals, and
internal promotions), high performance work systems (total quality management,
quality circles, job rotation, and teams), training, and employee involvement
(information sharing, attitude surveys, worker-management committees,
and grievance procedures) (Huselid 1995; MacDuffie 1995; Osterman 1994;
Kaufman 1991). Research has shown that work innovations have a positive
impact on firm performance (Ichniowski et al. 1996). Our objective is
to examine the impacts of the presence of a union on the adoption of work
innovations and firm performance as well as the impact of work innovations
on firm performance. Our data are taken from a national survey conducted
in 1995 in Jamaica. The results of a structural equation model (SEM) show
that unions are neither an impediment nor an encouragement to work innovations
and firm performance. Our data also show that work innovations are not
a determinant of firm performance. Based on these results, we argue that
unions cannot be demonized for impeding work innovations and firm performance.
Work innovations, in addition, may not have universal applicability (Osterman
1994).
Theory and Research
An Orthodox View Unions are conventionally viewed as a source of inefficiency
because they create a monopoly (Hirsch and Addison 1986). Unions, from
an allocative efficiency perspective, do not allow the market to determine
the equilibrium for the supply of and demand for labor. They impose a
wage rate that can result in the misallocation of resources away from
high-quality workers and capital toward workers who perform at a sub-optimum
level. Estimates of efficiency loss are very modest (Harberger 1954; Rees
1963; DeFina 1983). Rees (1963), for example, estimates that the output
loss for 1957 in the United States was 0.14 percent of the GNP. Such estimates,
though, do not include unemployment effects and the cost of creating and
maintaining a cartel (Hirsch and Addison 1986).
In terms of technical efficiency, unions, it is alleged, impose restrictive
practices. Restrictive practices can be imbedded in the "rule book" and
can include the inflexible deployment of workers and the rate of work
(Rees 1963; Flanders 1964). On the face, it seems as though these imbedded
restrictions can lower productivity, but empirical evidence is scarce.
Using the number of pages in a collective agreement as a proxy for restrictions,
Ichniowski (1984) shows that productivity is inversely related to the
number of work rules. Hirsch and Addison (1986) caution that such a lower
level of productivity can be ameliorated if "rules" reduce the likelihood
of a strike.
The final argument in favor of the negative impacts of unions relates
to outputs and strikes. An average strike impedes productivity growth
by 0.5 percentage points (Maki 1983). Neumann and Reder (1984), however,
show that struck firms substitute production over time and non-struck
firms pick up the slack, thereby reducing the effects of a strike on aggregate
outputs. Without adjusting production substitution, therefore, it is very
difficult to conclude that strikes impede productivity or performance.
H1a: Unionized firms are likely to perform worse than nonunionized
firms.
H1b: Unionized firms are likely to have a lower level of
work innovations than nonunionized firms.
An Alternative View A whole new school of thought has emerged to show the positive
impacts of unions. The exit-voice paradigm provides the foundation for
this school of thought (Hirschman 1970), but it is Freeman and Medoff
(1984) who are credited with popularizing this view. Union-induced improvements
can be summarized into the following categories: X-efficiency and shock
effects, collective voice, and idiosyncratic exchange (Hirsch and Addison
1986). X-efficiency exists in a workplace when capital and labor are not
utilized to their full potential (Leibenstein 1966). The motivation of
workers and organizational structure underlie X-efficiency. Unions can
provide a source of motivation and can "shock" management into better
organizational structure. The shock effect is only possible, however,
if X-efficiency existed before the union enters into the picture (Hirsch
and Addison 1986).
The concept of collective voice has emerged as the main argument in favor
of union-induced improvements (Freeman 1976; Freeman and Medoff 1984).
Workers get entrenched in their jobs and the workplace and this makes
quitting very difficult. They then seek to improve their lives by voicing
their views, which contributes to the prosperity of the firm. Looked at
differently, workers' job security and livelihood are tied to their work
and, as such, they make decisions that are consistent with the long-term
prosperity of the firm. Voice can lead to autonomy, which can induce productivity.
The union collects the common voice of the workforce, monitors individual
effort, and enables the best utilization of limited resources. These potential
gains are entirely contingent on management's response to collectivization
and the union's views on work reorganization (Hirsch and Addison 1986).
Workers who have skills that cannot be easily transferred have an incentive
to participate in the governance of the firm (Williamson et al. 1975).
One immediate goal is to make the employment relationship regulated. Instead
of the owner, the union monitors the managers of the firm. Such monitoring
can lead managers to do a better job (Kuhn 1985). This is a very optimistic
view since the union can also use such power to extract rents from the
owner of the firm (Hirsch and Addison 1986).
H1c: Unionized firms are likely to perform better than
nonunionized firms.
H1d: Unionized firms are likely to have a higher level of
work innovations than nonunionized firms.
Work Innovations and Firm Performance Theories of economics have been used to explain a positive
relationship between work innovations and firm performance. From a human
capital perspective (Becker 1964), investments in knowledge, skills, and
abilities will yield higher productivity and better firm performance (Youndt
et al. 1996). Ichniowski et al. (1996) proposed that focusing on work
innovations helps to remove inefficiencies from the workplace and employees
then respond with a greater degree of motivation and job satisfaction,
which results in better performance. It is, however, the resource-based
view that has been used the most to explain a positive relationship between
work innovations and firm performance (Wright and McMahan 1992). Organizational
economists (Ricardo 1817; Schumpter 1934) have argued that it is the internal
resources of an organization that form the basis of sustainable competitive
advantage. Barney (1991) argued that the acquisition, development, and
retention of human resources are important sources of competitive advantage.
One root cause of such competitive advantage (with respect to work innovations)
is inimitability, which is linked to the concepts of unique historical
conditions, causal ambiguity, and social complexity (Wright et al. 1994).
Each organization follows a unique path to its current state and the development
of work innovations, provides its own explanation for the development
of work innovations, and contains the social relationships that contribute
to functionality (Pfeffer 1994). A large body of evidence supports a positive
relationship between work innovations and firm performance (see Huselid
1995).
H2: Firms with higher levels of work innovations are likely to perform better
than those with lower levels of work innovations.
Methods The data for this paper are taken from a study designed to
measure the adoption, diffusion, and impacts of work innovations in Jamaica.
The study is the first of its kind to be conducted in that country. Hence,
its design and administration received extensive support. The Workforce
Development Consortium (a body jointly established by the Private Sector
Organization of Jamaica and the Jamaican Confederation of Trade Unions)
provided financial and administrative support. This included convening
a group of top human resource management professionals drawn from the
Jamaican Employers Federation and from academia to constitute an oversight
committee to monitor the administration to ensure that the instrument
was relevant to the Jamaican context and to improve the likely response
rate.
Establishments were selected from a master list provided by the Statistical
Institute of Jamaica. The list contained 2,196 establishments. After excluding
not-for-profit and public sector establishments, the result was a sampling
frame of 1,726 establishments. A non-proportional random sample of 562
establishments was selected. Two hundred and one usable responses were
returned (the response rate was 36 percent). This high level of response
reflects the strategy to split the questionnaire into two parts. The first
part contained questions that were deemed in the pre-test as "easy to
answer" and could be gathered through a mailed survey. Questions with
respect to work innovations, on the other hand, were classified as "difficult
to understand." For these questions, a trained interviewer conducted the
survey.
In the mailed part of the questionnaire, respondents were asked to report
on firm performance. Seven perceptual measures of firm performance were
gathered (1 = much worse and 5 = much better). Respondents were asked
a slightly modified version of the question used earlier in the United
States National Organizational Survey (Kallenberg and Moody 1996; Delaney
and Huselid 1996): "Compared to other organizations in [NAME SECTOR],
how would you rate [NAME ESTABLISHMENT'S] performance over the last 5
years in terms of [READ LIST]." The "sector" refers to the particular
industrial sector in which the business falls, the "establishment" refers
to the particular establishment sampled, and the "list" refers to one
of seven dimensions of firm performance. The seven performance measures
are marketing (MKTPERF), sales (SALPERF), profitability (PROPERF), market-share
(SHRPERF), quality of output (OUAPERF), customer satisfaction (CUSPERF),
and relations between workers and managers (RELPERF). As can be seen,
these outcomes reflect dimensions of the balance scorecard (Kaplan and
Norton 2001).
The obvious limitation of perceptual measures is their subjectivity. However,
Delaney and Huselid (1996), who also used perceptual measures, pointed
out that it is not unprecedented to use such measures and cite studies
that have found moderate to strong positive correlation between objective
and perceptual measures of firm performance. The most compelling argument
for their use in our context, however, is the unavailability of an alternative.
Even though the JNSWP included items seeking to measure actual performance,
respondents were either unwilling or unable to provide such information.
The option of searching the annual reports of publicly traded "single-establishment"
corporations was foreclosed because of the fact that only a small percentage
of the sampled establishments fell into this category. Finally, in the
case of a number of subsidiaries or branches of larger corporations, no
independent data were available on performance.
Thirteen work innovations are gathered from the literature (MacDuffie
1995; Bassi 1995; Pfeffer 1994; Ichniowski et al. 1995; Lawler et al.
1992; Arthur 1994; Osterman 1994). In the face-to-face interview, the
respondents were asked to report what percentage of nonmanagerial employees:
have jobs that are subject to a formal job analysis process (ANALYSIS);
are administered a formal employment test (besides being required to fill
out an application) prior to hiring (EMPTEST); received formal performance
appraisal (APPRAISE); in non-entry level jobs were recruited from within
the organization (PROMOWITH); participate in Total Quality Management
(TQM, ISO 9000, or similar quality oriented programs) (TQM); participate
in quality circles or productivity councils (QC); participate in job enrichment,
job enlargement, or job rotation programs (JOB); participate in autonomous
or semi-autonomous work teams (TEAMS); are regularly included in information
sharing programs (e.g., a newsletter, regular meetings) (INFOSHARE); are
regularly asked to complete attitude surveys (ATTITUDE); participate in
consultative or co-decision-making worker-management committees (WMCOMM);
and have access to formal grievance procedure or complaint resolution
system (GRIEVANCE). The final innovation, training, is captured by asking
the following question: about how much money was spent on training during
the last twelve month period (TRAIN)?
Unionization is defined and measured as a dummy variable. Respondents
were asked to indicate if their establishment was organized by one or
more trade unions (1 = Yes and 0 = No).
Results Table 1 shows the mean, standard deviation, and correlation
of firm performance and work innovations. Average firm performance is
highest for CUSPERF and lowest for PROPERF. Average adoption of work innovations
was highest for INFOSHARE and lowest for QC. On average, firms spent just
over J$1 million on training. The results show that the seven measures
of firm performance are positively correlated with each other at p
< .05. Several of the work innovations variables are also correlated
(e.g., ANALYSIS, EMPTEST, APPRAISE, TRAIN, TQM, OC, JOB, TEAMS, INFOSHARE,
WMCOMM, and GRIEVANCE). MKTPERF is positively correlated with ANALYSIS
(r = .16, p < .05), TQM (r = .26, p
< .05), and ATTITUDE (r = .20, p < .05). SALPERF
is positively correlated with TQM (r = .16, p < .05).
OUAPERF is positively correlated with TQM (r = .17, p <
.05). CUSPERF is positively correlated with TQM (r = .21, p
< .05) and QC (r = .19, p < .05), and negatively
correlated with GRIEVANCE (r=-.18, p < .05). Results
of correlation analysis, therefore, show that firm performance is positively
related to ANALYSIS, ATTITUDE, TQM, and QC.
Table 2 shows results of the ANOVA of firm performance by union status.
Almost 40 percent of the firms were unionized. However, the mean levels
of firm performance for unionized and nonunionized firms are not statistically
different at p < .05. The results of ANOVA, as such, do
not support that unions impede firm performance.
In Table 3, we report the means of the thirteen work innovations by union
status. None of the differences between the unionized and nonunionized
firms are statistically significant at p < .05. ANOVA results,
therefore, do not support the assertion that unions are an impediment
to work innovations.
The preceding analyses, however, have two limitations. First, as we have
seen in Table 1, the individual measures of firm performance and work
innovations are correlated with each other, sometimes at very high levels.
Second, in Table 1, we treat work innovations as exogenously determined.
To address these methodological concerns, we estimate a SEM (Byrne 2001).
Firm performance is treated as an unobserved variable comprising of MKTPERF,
SALPERF, PROPERF, SHRPERF, QUAPERF, CUSPERF, and RELPERF. Work innovations
is also considered to be an unobserved variable that is made up of ANALYSIS,
EMPTEST, APPRAISAL, PROMOWITH, TRAIN, TQM, QC, JOB, TEAMS, INFOSHARE,
ATTITUDE, WMCOMM, and GRIEVANCE. Union status is considered as an observed
variable. The structural component accounts for the relationship between
union status and firm performance, union status and work innovations,
and work innovations and firm performance.
The results of the SEM are reported in Figure 1. While the fit of the
model is adequate (2 = 320.14, DF = 187, and P = .001), none
of the structural coefficients (standardized) is statistically significant
at p < .05. Results of the SEM, therefore, show that unions
do not impede work innovations and firm performance. Our results also
indicate that work innovations do not determine firm performance.
Conclusion
None of the hypotheses (H1a, H1b, H1c, H1d, and H2) received
support from the data we collected in Jamaica. We conclude, as such, that
unionization has no effect on work innovations and firm performance. Neither
the orthodox view (Hirsh and Addison 1986; Harberger 1954; Rees 1963;
DeFina 1983; Flanders 1964; Ichniowski 1984; Maki 1983; Neumann and Reder
1984) nor the emerging view with respect to collective voice (Hirshman
1970; Freeman and Medoff 1984; Hirsh and Addison 1986; Leibenstein 1966;
Freeman 1976; Williamson et al. 1975; Kuhn 1985) is supported by the data
from Jamaica. Work innovations, in addition, do not determine firm performance
as past research has indicated (Becker 1964; Youndt et al. 1996; Ichnoiwski
et al. 1996; Wright and McMahan 1992; Ricardo 1817; Schumpter 1934; Barney
1991; Wright et al. 1994; Pfeffer 1994; Huselid 1995).
The competing effects of a union could be the explanation for our finding
of a statistically insignificant relationship between union status and
firm performance and union status and work innovations. However, work
innovations based on theory and past research should have positively affected
firm performance. We offer methodological explanations for the difference.
Our measures of firm performance and work innovations are not exactly
the same as past research. Past research focused on productivity and profitability
(e.g., Huselid 1995) and selected work innovations (e.g., employee participation
[Osterman 1994]). We used self-reported measures reflecting elements of
the balance scorecard (Kaplan and Norton 2001) and a list of work innovations
based on past research (MacDuffie 1995; Bassi 1995; Pfeffer 1994; Ichniowski
et al. 1995; Lawler et al. 1992; Arthur 1994; Osterman 1994). Our analytic
technique, the SEM, is also different from past research. At a minimum,
therefore, the hypothesized positive relationship between work innovations
and firm performance is not robust across different definitions and specification.
Given the pervasive role of unions in a developing economy (Kuruvilla
and Mundell 1999), it is surprising that unionization would have no impact
on work innovations and firm performance. This is encouraging news for
advocates of unions. Often branded as the bastion of inefficiency and
a source of corporate downfall, we find no evidence of the ill effects
of unions on work innovations and firm performance. At worst, they have
no effect on the adoption of work innovations and the performance of the
firm. But this is not the final word. We sincerely hope that or study
will inspire more research on the effects of unionization on work innovations
and firm performance in the developing world. Unions play an important
role in the growth of such economies (Adams et al. 1999). It would be
a real loss to relegate unions to the "inefficiency basket" without understanding
their real effects on work innovations and firm performance.
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