The Productivity Effects of Participatory Employment Practices : Evidence from New Japanese Panel Data

This paper uses new Japanese panel data to estimate the impact on productive efficiency of human resource management practices (HRMPs) designed to promote information sharing at the top level and at the grass roots level, and financial participation. These include joint labor-management committees at the corporate level and at the shop-floor level and financial participation schemes, such as employee stock ownership plans and profit sharing plans. By merging data from a new survey concerning HRMPs among publicly held Japanese firms with corporate proxy statement data, we create for the first time an enterprise-level panel data set for up to 152 Japanese manufacturing firms that provides information annually for 1973-92 on these HRMPs. The data are then used to estimate production functions augmented by variables to capture the effects of groups of HRMPs. We find evidence for the importance of introducing groups of HRMPs in three areas: (i) information sharing at the top level; (ii) information sharing at the grass roots level; and (iii) financial participation. Specifically, moving from the traditional system of no participatory HRMP's to a highly participatory system with HRMP's in all three areas lead to a significant 9-percent increase in productivity. The full productivity effect is, however, felt only after a long developmental phase (10 years). At the same time, we find no evidence for significant productivity gains from changing the industrial relations system from the traditional system to any intermediate systems which lack HRMPs in any one of the three areas