Academic journal article Economic Inquiry

Worker Attitudes and the Cost of Production: Hypothesis Tests in an Equilibrium Model

Academic journal article Economic Inquiry

Worker Attitudes and the Cost of Production: Hypothesis Tests in an Equilibrium Model

Article excerpt

WORKER ATTITUDES AND THE COST OF PRODUCTION: HYPOTHESIS TESTS IN AN EQUILIBRIUM MODEL

I. INTRODUCTION

U.S. labor productivity growth, resulting in a tripling of real GNP from the end of World War II to 1973, began to slow down in the mid-1960s and continued to slow throughout the 1970s. By the decade of the 1980s, productivity growth as measured by the U.S. Department of Labor's Office of Productivity and Technology had fallen from the 3.5 percent annual levels of the previous two decades to less than 1 percent per year.

A number of authors have tried to link worker morale and attitudes to labor productivity. Katz, Kochan, and Gobielle [1984] seek to attribute declines in labor efficiency (as they measure it) and product quality to deterioration in labor morale as measured by the frequency of grievances, disciplinary actions, absenteeism, contract disputes, and by the general climate of worker-employer relations at the plant leve. Weisskopf, Bowles, and Gordon [1984] attribute the slowdown to a decline in "effective" labor input per hour of purchased labor. They use a single equation macroeconomic model of aggregate production for the U.S.

This paper introduces an index of worker attitude constructed from various indicators, and estimates the effect of changes in this index on three measures of economic growth performance: labor productivity, multifactor productivity, and the costs of production. The study is based on the automobile industry in the United States. The model includes all purchased inputs, rather than the Katz, Kochan, and Gobielle _1984] and Weisskopf, Bowles, and Gordon [1984] approaches that studied labor productivity in isolation. Cost functions and input cost-share equations are estimated simultaneously. This procedure eliminates single-equation sensitivity to small changes in specification, and corrects for use of other inputs with labor.

A major contribution of this paper is the simultaneous estimation of the index of worker attitude and its effects on production. The result is an index of worker attitude that is based on effective attitude measures as evidenced by slower productivity rather than a measure of worker attitudes taken from direct surveys of the workers. Such surveys may or may not measure an index of "effective" attitudes, because the attitudes measured may not lead to slower production.

Statistical results (see Norsworthy and Zabala [1985a; 1985b]) are very strong and consistent with the neoclassical theory of production, and the attitude indicators are similar to those discussed in Zabala [1983]. The fact

that these models perform in a similar fashion at different levels of aggregation is persuasive evidence.

Major U.S. industries are performing better now than in recent times of economic recession, but many are operating at lower levels of production and with substantially smaller labor forces than in recent periods of prosperity. Competition from western Europe and Japan is extremely strong in both foreign and domestic markets. The results in this paper suggest strongly that U.S. industry could be made significantly more competitive by improved human resource management.

The following two hypotheses concerning attitudes on productivity and costs are tested: first, that worker attitudes have no effect on the cost of production; second, that the effects of worker attitude are factor neutral, having no effect on the relative efficiencies of capital, production-worker labor, nonproduction labor, and materials. Each of these hypotheses is tested in the context of two translog cost function models with alternate factor-share equations omitted.

Finally, the attitude indexes derived from the factor-neutral and factor-bias models are found to have similar properties and to be strongly correlated through time. There are also plausible correlations with labor productivity, total factor productivity, and the total unit cost of production. …

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