the diversity of personnel practices and firm performance€¦ · wage dispersion (high job levels)...

The Diversity of Personnel Practices

The Diversity of Personnel Practicesand Firm Performance

Pedro S. MartinsQueen Mary, University of London; IZA, Bonn; CEG-IST, Lisbon

Yong YangQueen Mary, University of London

MFJ-RIETI-WASEDA International ConferenceTokyo, 15 November 2008

Pedro Martins and Yong Yang The Diversity of Personnel Practices


Agenda

Agenda

1 Introduction

2 Data

3 Methodology

4 ResultsDiversity of Personnel PracticesPersonnel Practices and Firm Performance

5 Conclusions



Introduction

Motivation

Considerable interest in explaining dispersion in firmproductivity (Bartelsman and Doms JEL 2000)

Role played by management practices (Bloom and VanReenen QJE 2007)

Potential role of HRM and internal labour markets (Doeringerand Piore 1971; Baker et al QJE 1994a, b)

Studies tend to draw on subjective data or be based onindividual or small-size case studies (Lazear AER 2000; Bartelet al AER 2004; Bandiera et al QJE 2007; (S)HRM literature)



Introduction

This paper - contributions

Assesses the dispersion of personnel practices across firms:

Drawing on comparable quantitative data (a rich matchedemployer-employee panel)Considering the case of almost 5,000 firms (4,792), over a20-year periodFirm by firm analysis, along several dimensions of interest(wage determination, turnover and careers)

Investigates the relationship between personnel practices andfirm performance:

Cross-section and longitudinal analysisCausal relationship - if one is willing to assume that firmsexperiment different personnel practices over timeLarge sample size - reduces multicollinearity/micronumerosityproblems



Data

Quadros de Pessoal

Annual census of all firms in Portugal with at least oneemployee, conducted by Ministry of Employment

All employees of each firm

Unique identifiers for both firms and employees

Several variables describing firms (industry, region, sales,equity, no. of workers, ownership type, etc)...

... and workers (age, gender, schooling, tenure, occupation,job level, wages - 5 variables -, hours of work, etc)

Coverage: 1982-... (this paper: 1986-2004; no worker id’sbefore)



Data

Sample

Sample selection:

Only firms with at least 50 employees per year in at least 10yearsAll firm-year observations (in 1986-2004) of selected firms areincluded

More comparable set of firms, minimizing potential fordispersion of personnel practices?!

Results in (non-representative) sample of about 1% of firmsover 1986-2004 period

4,792 firms; mean of 15 years per firm (stdev of 2.2)



Data

Job-level categories

Level Description Task1 Top executives Definition of the firm general policy or consulting on the

(top management) organization of the firm; strategic planning; creation oradaptation of technical, scientific and administrative methods

2 Intermediary executives Organization and adaptation of the guidelines established(middle management) by the superiors and directly linked with the executive work

3 Supervisors, Orientation of teams, as directed by the superiors,team leaders but requiring the knowledge of action processes

4 Higher-skilled Tasks requiring a high technical value and definedprofessionals in general terms by the superiors

5 Skilled Complex or delicate tasks, usually not repetitive,professionals and defined by the superiors

6 Semi-skilled Well defined tasks, mainly manual or mechanical (no intellectual work)professionals intellectual work) with low complexity, usually routine and sometimes repetitive

7 Non-skilled professionals Simple tasks and totally determined8 Apprentices, Apprenticeship, interns, trainees

Definition adopted in paper: Levels 1-3: High; Levels 4-8: Low.

Ranking also holds in terms of wages and HC variables



Methodology

Empirical approach

We consider 3 areas of personnel and 6 specific practices:

Turnover [retention/efficiency wages/training]

Entry and exit rates (% of workers new in the firm in year t orleaving the firm in year t)Tenure of completed (and ongoing) spells

CareersJob levels of new, exiting and continuing workers [scope forcareers]Role of job-level tenure in worker promotion or exit [promotionby seniority?]

Wage determinationAdj. R2 of wage regressions on human capital or job-levelvariables [role of structures/discretion/UH]Wage dispersion by job-level groups (managerial andnon-managerial workers) [tournaments/fairness]



Methodology

Adj. R2 of wage regressions on HC or JLs

1) Estimate, for each firm-year:wit = X HC

it′β1 + εit and wit = X JL

it′β2 + εit

wit : log real hourly wage of worker i in year t

X HCit : vector of human capital characteristics (schooling,

quadratics in experience and tenure and a gender dummy)

X JLit : vector of seven job level dummy variables

2) For each firm-year, collect the adjusted R2’s from eachregression



Methodology

Residual wage dispersion - managers and non-managers

1) Estimate, for each firm-year:wit = X HC

it′β1 + X JL

it′β2 + εit

2) Compute, for each firm-year, the standard deviation of theresiduals of workers in job levels 1-3 (managers) and job levels 4-7.



Methodology

Role of job-level tenure in worker promotion or exit

1) Estimate, for each firm-year:Promotedit = β1JobLevelTenureit + X a

it′β2 + X b

it′β3 + εit

Leaverit = β∗1JobLevelTenureit + X ait′β∗2 + X b

it′β∗3 + εit

Promotedit : 1 if worker i is promoted in year t (0 otherwise)

Leaverit : 1 if worker i leaves the firm in year t (0 otherwise)

JobLevelTenureit : no. years that worker i has been in currentjob level by year t.

2) For each firm-year, collect β̂1 and β̂∗1 (and their standard errors)



Results

Diversity of Personnel Practices

Descriptive statistics - personnel practices

Variable Mean Std. Dev. Min. Max. NWorker entry rate 0.149 0.104 0.002 0.91 4792Worker exit rate 0.18 0.068 0.039 0.663 4792Job level change (careers) 0.409 0.497 -2.241 3.375 4792Tenure of completed spells 7.838 4.939 0.105 28.364 4792Human capital adj. R2 0.495 0.13 0.038 0.924 4769Job levels adj. R2 0.519 0.131 0.026 0.930 4769Wage dispersion (high job levels) 0.322 0.105 0 0.949 4768Wage dispersion (low job levels) 0.259 0.067 0.06 0.722 4792Job-level-tenure promotion coeff. 0.001 0.031 -1.057 1.094 4784Job-level-tenure exit coefficient 0.003 0.02 -0.954 0.14 4784

Dispersion of personnel practices across firms is considerable...

...and only falls moderately (by around 10%) when taking into account industryand/or firm size differences (not shown here)



Results


Descriptive statistics - performance and control variables

Variable Mean Std. Dev. Min. Max. NLog sales 14.919 1.525 1.834 21.384 4727Log total wage 1.417 0.429 0.553 3.285 4792Log no of workers 4.831 0.779 3.765 9.993 4792Avg job level 5.296 0.65 1.991 7.351 4792Avg schooling 6.642 2.066 3.169 16.241 4792Avg tenure 9.364 4.748 0.394 27.986 4792Avg experience 24.276 5.575 4.822 50.985 4792Foreign owned 0.098 0.297 0 1 4788Log equity per worker 13.456 1.776 4.892 21.817 4660Firm entry year 1967.51 31.917 1499 2004 4781



Results


Distributions of entry and exit rates

02

46

8D

ensi

ty

0 .1 .2 .3 .4 .5

Entry Rate Exit Rate



Results


Scatterplot of entry and exit rates

0.1

.2.3

.4.5

Ent

ry r

ate

0 .1 .2 .3 .4 .5Exit rate



Results


Dbns of job levels: new, exiting and continuing workers

0.2

.4.6

.8D

ensi

ty

2 4 6 8

Level of Exit Level of Current EmployeesLevel of Entrant



Results


Distributions of adj. R2’s - HC and JL equations

01

23

Den

sity

0 .2 .4 .6 .8 1

Human capital Job levels



Results


Scatterplot of adj. R2’s - HC and JL equations

0.2

.4.6

.81

R2

− H

uman

Cap

ital

0 .2 .4 .6 .8 1R2 − Job Level



Results


Distributions of wage dispersion at job levels

02

46

8D

ensi

ty

0 .2 .4 .6 .8 1

Top Level Low Level



Results


Distributions of job-level-tenure promotion coefficients

050

01,

000

1,50

0D

ensi

ty

−.05 −.04 −.03 −.02 −.01 0 .01 .02 .03 .04 .05

Track Promotion (insignificant) Track Promotion (significant)



Results

Personnel Practices and Firm Performance

Estimation

Performanceit =∑

j βjPractice jit + X ′itδ2 + λt + αi + εit

Performanceit : log of sales per worker at firm i in year t

Practice jit : value of Practice j for firm i in year t

Xit : control variables presented before, including (average)worker and firm characteristics

λt : year fixed effects

αi : firm fixed effects



Results

Personnel Practices and Firm Performance

Regression results

(1) (2) (3) (4) (5) (6)Worker entry rate 1.045∗∗∗ .896∗∗∗

(.114) (.145)

Worker exit rate -1.093∗∗∗ -1.168∗∗∗(.093) (.112)

Job level change (careers) .054∗∗∗ .049∗∗∗(.011) (.012)

Tenure of complete spells .009∗∗∗ .016∗∗∗(.004) (.004)

Human capital adj. R2 .638∗∗∗ .269∗∗(.085) (.117)

Job levels adj. R2 .631∗∗∗ .380∗∗∗(.075) (.105)

Wage dispersion (high JLs) -.140∗ -.123(.079) (.083)

Wage dispersion (low JLs) -1.967∗∗∗ -1.206∗∗∗(.134) (.194)

Job-level-tenure promotion coef. -.009∗∗∗ .033(.0006) (.074)

Job-level-tenure exit coef. .004 -.325∗∗(.009) (.143)

Obs. 50963 47796 50212 43002 50861 40411

R2 .667 .663 .67 .684 .665 .685



Conclusions

Conclusions

Evidence of:

Considerable dispersion of personnel practices across firms

Significant predictors of firm performance (in longitudinalanalysis):

Turnover (entry rate: +ve; exit rate: -ve) - welfare-enhancingreallocation of resources?Career duration and mobility (scope for progression, tenure:both +ve; job level tenure as predictor of exit: -ve)Fit between job levels or HC and wages (+ve) - rules ratherthan discretionWage dispersion at low job levels (-ve) - fairness



Conclusions

Future/Current work

Extending sample coverage (population of firms?)

Additional personnel practice measures:

Average share and variability across of workers of non-base pay(and overtime)Dispersion of wage increasesPorts of entry (concentration/dispersion of new hires acrossjobs/job levels)Poaching workers from other firmsForeign workers, temporary/permanent contracts (from 2002only)

Explaining diversity of practices (sector, size, age,competition, etc)

Differences between domestic and foreign/multinational firms(cross-sectional or based on acquisitions/divestments)


the diversity of personnel practices and firm performance€¦ · wage dispersion (high job levels)...

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