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New research suggests that competition and high productivityare not the threat to workers they are often made out to be

July 1, 2006

For more information, contact: Benjamin Haimowitz,

Are globalization and the intense competition that goes with it bad for workers' quality of life? In the belief they are, Jacques Chirac and other European leaders have assigned a high priority to "safeguarding the public interest," as Chirac puts it, and to "never let[ting] Europe become a mere free-trade area."

Now an exhaustive study of more than 700 manufacturing firms in the U.S., France, Germany, and the U.K. suggests that the pessimism of Chirac is misguided.

The research, to be presented Mon., Aug. 14, at the annual meeting of the Academy of Management (Atlanta, Aug. 13-16), finds that competitive market conditions and the improved productivity associated with them are entirely compatible with measures that foster a sound work-life balance (WLB), such as good hours, flexible working conditions, and family-friendly policies.

"Based on our results, it is simply not true that globalization is a great disaster for employees," comments Nick Bloom of Stanford University, who carried out the study with Tobias Kretschmer and John Van Reenen of the London School of Economics.

At the same time, though, the research takes issue with the optimistic view associated with Tony Blair and many management scholars in the United States. This so-called "Anglo-Saxon liberalism" sees WLB as a "win-win" proposition that actually fosters high productivity. As Blair puts it, "flexible labor markets combined with... family friendly policies to help work/life balance [have resulted in] higher growth, higher employment, and low unemployment.

In what amounts to two cheers for WLB, the study's authors beg to differ. They acknowledge that "firms with better management practices will tend to have higher productivity and better WLB." But it is good management, not WLB, that enhances productivity.

In the authors' words, "There is no systematic relationship between productivity and WLB once good management is accounted for."

En route to these findings, the study uncovers some striking differences in workplace conditions among the four countries.

-- French managers work only 68% of the number of hours annually that U.S. managers do, through a combination of fewer hours per week, longer holidays, and more sick leave. U.K. managers work 82% and German managers 84% of U.S. managers' hours.

-- Women constitute 31% of managers in the U.S., compared to only 16% in Germany, 18% in the U.K., and a mere 12% in France, this last statistic leading the authors to wonder that the notoriously heavy hand of regulation in France has been ineffective "at ensuring female the managerial workforce."

-- Although U.S. companies are better managed than European firms, they have significantly worse WLB -- except, that is, when it comes to subsidiaries of U.S. firms in Europe, which have WLB equal to that of domestic European companies. Comments Bloom, "If you want superior management combined with worker-friendly practices, get a job with an American company in Europe."

The study's findings derive from exhaustive research focusing on 732 medium-sized manufacturing firms in the four countries and entailing the following:

**Interviews with plant managers that provided the basis for rating each company on the quality of 18 management practices involving operations, performance-monitoring, goal-targeting, and worker incentives.

**Data from each company relating to workforce characteristics, hours, and holidays, as well as policies on childcare flexibility, home-working entitlements, part-time to full-time job flexibility, job-sharing schemes, and childcare subsidy schemes.

**Firm-level data relevant to productivity and financial performance.

**Measures of competition, including the number of competitors faced by each firm and the degree of import penetration in each country by industry.

The researchers find competition to be "essentially uncorrelated with WLB... [A]lthough competition seems to improve management, it does not seem to be associated with worse WLB outcomes or practices." So much for the Jacques Chirac school of management.

The researchers do find good WLB to be associated with superior management practices. But they find it to be associated with productivity only up to a point -- the point where management practices are included in the analysis. When the strong association between management practices and productivity is taken into account, the association between WLB and productivity dwindles to insignificance. In short, the latter association is "spurious," the views of Tony Blair and many management scholars notwithstanding.

"Although WLB is socially desirable," says Bloom, "this doesn't mean that policymakers should necessarily mandate more of it. True, U.S. subsidiaries in Europe do not lose their managerial edge when they adopt Europe's superior WLB policies. But the policies in question -- working from home, job sharing, etc -- are typically not government-regulated in Europe anyway. Our belief is that social norms explain much of this localization by U.S. multinationals.

"In the end, even if productivity does not fall, WLB is costly to implement and maintain, and may result in significantly lower profitability. Any proposed changes to WLB policies need to weigh up these financial burdens on firms."

The paper, entitled "Work-Life Balance, Management Practices and Productivity," will be among thousands of studies presented at the Academy of Management meeting. Marking its 70th birthday this year, the academy is the largest organization in the world devoted to management research and teaching. It has close to 17,000 members in 90 countries, including some 10,000 in the United States. This year's annual meeting will draw about 7,000 scholars and practitioners to Atlanta, Georgia, from August 13th to 16th for nearly 1,500 sessions on a host of subjects relating to corporate organization and investment, the workplace, technology development, and other management-related topics.

Media Coverage:
U.S. News & World Report. Perks Aren't So Productive. (Monday, July 31, 2006).

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