How Does Employee Involvement Stack Up? The Effects of Human Resource Management Policies on Performance in a Retail Firm





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       The authors’ affiliations are, respectively, Hamilton College, Clinton, NY 13323; Department of Economics, Helsinki School of Economics; and HECER, P.O. Box 1210, Helsinki 00101, Finland. E-mails:,, The authors are grateful to the support from the Academy of Finland (Project Nos 206027 and 120234) and the Finnish Work Environment Fund (Grant No. 103313). Jones's work was supported in part by a Foundation for Economic Education Fellowship and NSF SES-0522117 for which he is grateful. Part of the research was carried out when Kalmi was visiting the ILR School at Cornell University, when Kauhanen was visiting SKOPE at the University of Oxford, and Jones was an Ikerbasque Fellow at the University of Mondragon. The paper has benefited from comments on an earlier draft by seminar participants at the NFF annual conference at Aarhus, SKOPE, Oxford, Finnish Society for Economic Research XXVII Annual Meeting, Cornell University, Rutgers University, and by Jed DeVaro, Tor Eriksson, Kevin Hallock, Pekka Ilmakunnas, Jeffrey Pliskin, Matti Pohjola, and Petri Rouvinen. The authors are extremely grateful to a number of individuals working for the case firm for interviews, comments, and access to the data. The data used in this study are proprietary and were obtained only by signing a confidentiality agreement. Hence, the authors are unable to release these data.


The impact of innovative human resource management (HRM) practices on performance is investigated using panel data for all units of a retail firm. Our rich data include measures of the operating environment, important dimensions of core inputs, and information on HRM environments, and output is measured as value added. We estimate augmented production functions, including both establishment and manager fixed effects. When employees have opportunities to participate, and receive appropriate information and feedback from their supervisors, productivity is enhanced. Thus, even in settings where employees do simple tasks and are relatively low-skilled, participatory work environments can enhance business performance.