What’s Driving the New Economy: The Benefits of Workplace Innovation

Using a unique nationally representative sample of U.S. establishments surveyed in both 1993 and 1996, we examine the relationship between workplace innovations and establishment productivity and wages. Using both cross-sectional and longitudinal data, we find evidence that high performance workplace practices are associated with both higher productivity and higher wages. Specifically, we find a positive and significant relationship between the proportion of non-managers using computers and productivity of establishments. We find that firms that re-engineer their workplaces and incorporate more high performance practices experience higher productivity. For example profit sharing is associated with increased productivity and employee voice has a large positive effect on productivity when it is done in the context of unionized establishments. These workplace practices appear to explain a large part of the movement in multifactor productivity over the period 1993-1996. When we examine the determinants of wages within these establishments, we find that re-engineering a workplace to incorporate more high performance practices leads to higher wages. However, increasing the usage of profit sharing results in lower regular pay for workers, especially technical workers and clerical/sales workers. Finally, increasing the percentage of workers meeting regularly in groups has a larger positive effect on wages in unionized establishments. Sandra E. Black Lisa M. Lynch Domestic Research Function Fletcher School of Law & Diplomacy Federal Reserve Bank of New York Tufts University 33 Liberty Street Medford, MA 02155 New York, NY 10045 and NBER [email protected] [email protected]