INDUSTRY STUDIES ASSOCATION WORKING PAPER SERIES The Effect of HRM Practices and R&D Investment on Worker Productivity

Using data on a large sample of electronics firms in seven large states from a newly developed employer-employee matched database (Longitudinal Employer Household Dynamics, LEHD), we examine the impact of human resource management (HRM) practices and technology on worker productivity. Motivated by extensive site visit research in the semiconductor industry in which we observe the interaction of HRM practices, technology and product markets, we use linked employer-employee data to test the generalizability of our case study observations. Specifically, we examine the relationship between product markets and HRM practices. Empirically, we identify HRM clusters for firms based on firm-level observations of nine measures of HRM outcomes. Next, we use principal components analysis to examine the relationships between the HRM measures. Then we use these principal components and their interactions with R&D investment as explanatory variables in a worker productivity regression. We find that there are large differences on the impact of human resource practices on labor productivity across levels of technological investment. Our preliminary results indicate that firms with high levels of R&D investment and HRM systems with multiple ports of entry, performance incentives, and lower turnover have higher worker productivity than comparable high-R&D firms without these HRM practices. Similarly, firms with low R&D that implement HRM systems with performance incentives have higher productivity than low R&D firms without performance incentives. These results suggest that high R&D firms are more likely to buy new skills compared to low R&D firms, and yet these high R&D firms suffer if they lose too many experienced workers. These findings are consistent with the implications of our “make versus buy” model of workforce skill adjustment as a response to technological change.