PUBLIC POLICY FOR THE NEW EMPLOYEE/EMPLOYER RELATIONSHIP
It is possible to envision two fundamentally different paths that the
employee/employer relationship can take in the United States in the next 20
years. 55 One path continues the trend of job insecurity as firms respond to high
levels of competition and technological change by weakening connections to any
one group of employees-by treating workers as a variable cost who can be
readily laid off or hired on a contingent basis in response to often-rapid changes
in markets and technologies. In this arrangement firms focus on the current skills
employees can provide, and are unlikely to make investments in employee
training or in policies and benefits that encourage worker commitment. A second
path has firms strengthening employee/employer connections in order to develop
a highly-skilled and committed workforce that is an important resource in
adapting to changes in markets and technologies. In this arrangement firms use
extensive training, employee involvement, and flexible reward systems to create
and take advantage of higher worker skills, motivation, and commitment.
The next 20 years will undoubtedly contain plenty of examples of firms in both
paths. We base our discussion of public policy on what can be done to further the
second path-to create high-performance workplaces where workers and
employers share the rewards of high performance, and workers have
employment security and high skill levels while firms have productive, committed
workforces. The policy recommendations we offer are meant to be provocative,
to stimulate discussion of what the employee/employer relationship should look
like and how that can be achieved.
As reviewed in sections III and IV, existing research provides substantial support
for positive performance effects from employee participation in ownership, profits,
and other high performance work practices. Why then are they not used more
frequently, particularly in combination with each other? As discussed,
informational and other barriers may limit the diffusion of these practices; such
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barriers may be addressed by public policies aimed at encouraging these
systems. The agricultural extension system, for example, is justified by the public
good of spreading information to farmers, ensuring that productive innovations
are quickly diffused. Government-sponsored demonstration projects may be
similarly justified both in testing and diffusing knowledge on innovations. In
addition, existing laws and regulations can be reviewed with an eye toward
removing obstacles to innovative practices; for example, uncertainty over the
legality of some forms of employee participation in nonunion settings has made a
majority of managers cautious about expanding such programs (Commission on
the Future of Worker Management Relations, 1994: 53).
A different type of public policy rationale is provided when certain behaviors or
practices have positive externalities, or societal benefits not captured by the
actors. While the benefits of productivity improvements are captured within the
firm, there may be important societal benefits in the spread of profit sharing and
employee ownership. This is particularly true for the share economy theory of
profit sharing: gains from employment stability accrue to the entire economy, as
macroeconomic stability is enhanced by the maintenance of worker output and
purchasing power without unemployment benefits or government assistance.
This can provide a strong case for tax incentives to encourage firms and workers
to use profit sharing (Weitzman, 1984; Mitchell, 1995). A different type of
rationale has been used to support public policy favoring employee ownership, in
which it is seen as a "merit good" or serving a "social transformation" role
(Mitchell, 1995). Sen. Russell Long was, as noted, an early proponent of ESOPs
on the basis that they could help broaden the distribution of wealth in the United
States. Viewed as an intrinsic good or as having important social consequences
(such as keeping society from splitting further into the "haves" and "have-nots"),
a more equal distribution of wealth through employee ownership may justify
favorable public policy (as argued, e.g., by Gates, 1998).
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Our policy ideas are based on several findings about the direction of
employee/employer relations. Career-long commitment of companies to
employees appears to be on the decline; nevertheless, companies often voice
demands for more performance, more skill, more commitment, and more
flexibility from the workers who remain on the job. Also, most employees voice
desire greater participation on their jobs and there is widespread support for
employee ownership and performance-based pay; in other words, the notion of
an ongoing economic partnership between American workers and American
companies-a kind of employee-led capitalism-has strong support. Despite all this,
only a small minority of U.S. firms extensively involve employees in ownership,
profits, and a combination of high performance work practices. Research findings
indicate that significant expansion of these practices could boost overall
economic performance; at a minimum, there is no support for the view that
widespread use of them would harm performance.
Given these findings and the positive role that public policy may play both in
overcoming informational and other barriers and in encouraging practices with
societal benefits, we offer the following specific policy ideas. These should be
viewed as a preliminary attempt to provide the domestic policy group with a
template for debate and re-finishing rather than as a finished set of
recommendations. In fashioning these, we have tried to adhere to the principle
that policy recommendations must be simple and easy to understand for
companies, employees, government officials, and the general public if they are to
have any chance of being adopted.
There needs to be better documentation of high performance work practices,
given their potential for increasing U.S. business performance. There is no
current method for annual documentation of high performance work, and such
practices cannot be encouraged and studied well if they cannot be measured and
tracked. Therefore we recommend:
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1. Establishing a national commission of business, labor, and government
representatives to mobilize expertise, serve as an information clearinghouse, and
sponsor objective research on work practices (similar to the government's role in
health and safety research).
2. Increased data collection through the Bureau of Labor Statistics or Census
Bureau, and possibly through business tax returns, to gather better information
on high performance work practices:
a. How much of the company's common and preferred stock is owned by
different classes of employees, and what is the value of stock and stock options
distributed to different classes of employees last year? Under what format was
stock distributed (ESOP, 40 1 k, stock purchase, etc.), and what percent of
employees participate?
b. How much of the company's W-2 compensation was distributed through profitsharing or gainsharing plans to different classes of employees in the last year,
and what percent of employees of each class participated in this program? What
was the specific format of this profit-sharing or gain sharing?
c. How many employees in different categories participate in formal employee
involvement structures, such as self-managed work teams, and do employees
below top management have bona fide representatives on the board of
directors?
d. How much is spent on worker training and on recruitment and selection, both
overall and for specific employee classes?
e.What types of pension and health insurance packages are offered to
employees?
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Tax incentives for profit sharing may be justified for encouragement of
employment stabilizing systems, while ESOP incentives have been based on the
value of broadening the wealth distribution and encouraging greater employee
participation in the economic system. In addition, some targeted incentives may
be justified to help firms overcome informational and other barriers to adoption of
new work practices. We recommend that:
3. The basic tax benefit for all employee ownership plans, broadened stock
option plans, profit sharing and gain sharing plans should be enhanced,
expanded, and increased to represent a meaningful increased incentive for
greater involvement of employees in the business.
4. A meaningful proportion of further business tax decreases (either reduced tax
rates or increased tax credit) should be mainly driven by tax reductions based on
the adoption of multiple high performance work practices. These can be based
on the combination of the following grades of high performance workplace
practices:
a. More than 30% (or alternatively, 15%) of W-2 compensation for all employee
classes spent on employee-owned stock, stock options, profit sharing, or
gainsharing;
b. More than 50% of employees in self-managed work teams;
c. High percentage of annual labor costs spent on training-,
d. High expenditures on recruitment and selection costs For a given number of
job openings;
e. At least one rank-and-file or supervisory employee or their representative on
the board of directors-,
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f. A minimum health insurance and pension package.
g. An alternative dispute resolution program that ends in binding arbitration for all
employees.
Most basically, such policies will allow the public to track the development of the
new employment relationship and provide incentives for valuable innovations.
We see these ambitious recommendations as initiatives that can help to
fundamentally reshape the nature of the typical employee/employer relationship
for the 21st century-creating high-performance "shared capitalism" and avoiding
a system based on job insecurity, inadequate worker skills, and low productivity
levels and growth.
Footnotes:
55. These paths were outlined by Alan Blinder of Princeton University, former
Vice Chair of the Federal Reserve Board and member of President Clinton's
Council of Economic Advisers, in his speech at the National Bureau of Economic
Research conference on "Shared Capitalism", Washington, D.C., May 23, 1998.
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