Culture, Incentives, and Economic Behavior: crosscountry labor practices, behavior and outcomes

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Culture, Incentives, and Economic
Behaviorcross-country labor practices, behavior
and outcomes

• Rome Oct 18, 2007
• Monitoring Italy 2007 Process Innovation,
  Management Efficiency, and Economic Performance
  
• Richard B. Freeman based on work with
• Doug Kruse, Joseph Blasi

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Culture whats that?

• Economics knows incentives and responses to
  incentives. We believe everyone is supposed to
  respond the same to everything. Supply up,
  demand down. As for empirics, natural
  experiments (difference in difference analyses)
  argue against such complex concepts. Goodness
  gracious Molly, if culture matters, we might have
  to pay attention to other disciplines sociology
  anthropology etc Obdurate follower of
  invisible hand.

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Invisible Hand
Complicated Cultural Object
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This talk tells two stories

• Study of single large multinational and behavior
  and response of workers to similar incentives
  across country lines.
• How data from entire project forced one obstinate
  economist (me) to accept the notion that
  culture is a necessary though imprecise concept
  for analyzing company data.
• The evidence is taken from NBER Shared Capitalism
  project, in which we obtained 40,000 worker
  responses in 16 firms to questions about
  behavior, including responses to shirking by
  co-workers, and in which we relate behavior to
  incentives, then build a more complex corporate
  culture model

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Story 1 Single major multinational firm do
different economic environments affect
workers/firms behavior?

• This is largest single firm study since
  Hofstedes analysis of IBM Hofstede focused on
  cultural issues we began with a focus on
  incentives.
• Our hypotheses
• H1 Give same incentives and get same response
  parameters so differences in work behavior are
  largely due to different incentives.
• H2 Other issues/culture/interactions ?
  different responses to same incentives (slope) or
  different levels of response
• (level)

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• To obtain country effect, want to place the same
  worker/firm in different settings and observe
  outcomes similar to taking same species and
  placing it in different habitats.
• For person identical twin studies could
  imagine randomly assigning immigrant
  before/after matched people across
  firms/countries
• For firms multinational operating in different
  countries, doing same things so differences
  reflect environment outside company control

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• With firm held fixed, differences can reflect
  country de jure rules de facto modifications of
  practices different worker responses to same
  practices culture (whatever that means)
• Similarity ? universal relations in firms/workers
• Differences in same country ? different cultures
  within facilities?
• Differences across countries ? different
  cultures/other aspects of labor practices across
  countries?
• Problem in making country inference is that
  facilities vary also in the same country ?
  possibility that observed country differences
  could reflect differences among facilities that
  would be found in a given country smaller sample
  raises risk of this form of misattribution

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NBER Survey Data

• Internet/Paper survey of workers with questions
  on incentive pay systems, standard employee
  opinion items attitudes/behavior toward
  co-workers labor-management relations and
  special questions on worker perception and
  responses to shirking worker views of how their
  facility does
• Company measures of facility performance
• on-time delivery backlog expressed as days
  late sales growth sales/employee

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NBER Shared Capitalism Survey of mfg firm (
facilities) employment, by country
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This presentation focuses on employee-employer
relations and behavior toward shirking and
facility/co-worker performance

• Two main Cross-country conclusions
• Differences in levels of outcomes
• Similar responses to incentives
• Shirking
• Group incentive pay good labor relations?
  Workers act against shirking ? better performance

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The Shirking Issue Worker Co-monitoring to the
rescue?

• Group incentives used in modern economies
• Persistence and relation to product implies
• that they succeed, at least where firms use them.
• But free riding 1/N says they should not work
• Our hypothesis Co-monitoring and worker actions
  against shirking are important aspect of success
• Evidence More worker actions against shirkers
  when workers are paid by group incentive and
  actions greater when group incentive pay is more
  substantial based on two questions in two data
  sets

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Two questions on Shirking

• Q1 In your job how easy is it for you to see
  whether your co-workers are working well or
  poorly? On a scale of 0 to 10 please describe
  with 0 meaning not at all easy to see and 10
  meaning very easy to see
• Q2 If you were to see a fellow employee not
  working as hard or well as he or she should,
• how likely would you be to
• A. Talk directly to the employee
• B. Speak to your supervisor or manager
• C. Talk about it in a work group or team
• D. Do nothing
• The responses use a four-point scale not at all
  likely, not very likely, somewhat likely, and
  very likely

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A Skewed Distribution with Country differences
of the How Well Workers Can See Whether
Co-workers Are Working Well or Poorly
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Distribution of Summated Rating of Response to
Shirking(16 do most 4 do least)
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Table 1 Observability of co-workers, response to
shirking, and Shared Capitalism-- monetary
participation in firm profit-sharing, stock
options, share ownership
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Table 2 Country Patterns in other measures
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Table 3 T-statistics for Relation between
Anti-Shirking Behavior and Workers views of
Workplace facility, all workers at firm

• If you were to rate the facility you work in on a
  scale similar to school grades, what grade would
  you give in these areas?
• 1) Getting the job done that has to get  done
  efficiently t 21.1
• 2) Practicing accountability, where specific
  individuals
• are clearly responsible and held accountable
• for each result that has to be achieved t
  23.3
• 3) Delivering our customers' products on time
  t7.7
• 4) Delivering the highest quality customer
  products t17.7
• 5) Being the market leader in its products
  t13.2

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Coefficients on Impact of Employee Relations and
Anti-shirking, Willingness to Work Hard, Facility
Effectiveness
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Impact of SC Index on Anti-shirking Behavior
Coeff std error
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Anti-Shirking Behavior and Co-worker effort,
averages across facilities
T3.48
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Anti-Shirking Behavior and Site Performance,
averages across facilities
T3.47
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To test country effects, we compare effects of
country dummies on facilities with effects of
state dummies on facilities in US
Model allows for level effects and slope effects
with respect to labor relations climate (other
factors) We found country level effects much
greater than state level effects but this could
be due to any of multiple differences I wanted
to find that country slope effects were similar
to state slope effects, but they were modestly
greater ? Weak evidence for some possible
difference in response by country culture??
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Story 2 Footprint of corporate culture?
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Obdurate economist challenge (from me) OK, we
have some evidence of complex interactions but I
challenge you to organize the data in a
convincing way so that this is more than simply
an interpretation of complexity.
Tentative Conclusion The interaction of the
effects of shared capitalism with other corporate
policies suggests that the various shared
capitalist and other policies may operate through
a latent variable, corporate culture.
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The Response new structural model/ corporate
culture paper
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Basic Correlation Data Used to Estimate Model
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Conclusions

• Key findings
• Simple economics -- Similarity of behavioral
  responses with differences in levels that could
  be interpreted in different ways
• Interactions that suggest cultural
  interpretation ?workable model with latent
  culture and other hypothesized variables
• Next step
• More company analyses UK this fall
• Need for field experiment with controlled
  variation across establishments.