Better working conditions in companies with innovative practices

The Research Centre for Innovation and Knowledge Economy has published a study entitled ‘Innovative dynamics, industrial relations, performance in manufacturing companies’. The study investigates working conditions as a driver of long-run dynamics in productivity at company level. Better working conditions in general are associated with higher productivity, especially when organisational flexibility, training and both technological and organisational innovations are introduced.

Background information

The study Innovative dynamics, industrial relations, performance in manufacturing companies (Antonioli et al, 2007) offers an in-depth analysis of the 2006 report entitled Innovative dynamics, Industrial relations, performance. A survey of Reggio Emilia manufacturing companies (‘Dinamiche innovative, relazioni industriali, performance. Una indagine sulle imprese manifatturiere di Reggio Emilia’ (in Italian, 798Kb PDF)). The latter was published by the Research Centre for Innovation and Knowledge Economy (Centro di Ricerca sulla Economia dell’Innovazione e della Conoscenza, CREIC) within the Faculty of Economics at the University of Ferrara.

A survey was carried out in 2004 at company level by interviewing works councils in 192 of over 572 manufacturing companies with more than 20 employees. These interviews focused on the relationships between company performance and work practices, innovation, personnel policies and industrial relations. It follows on from the 2002 survey (in Italian) carried out in over 192 manufacturing companies with more than 50 employees, and introduces a new section on working conditions. Both surveys were carried out on behalf of and in cooperation with the General Confederation of Italian Workers (Confederazione Generale Italiana del Lavoro, Cgil), the largest of the Italian trade unions.

The province of Reggio Emilia, located in the north of Italy, is a prototype of the industrialisation of small and medium-sized enterprises (SMEs) and is famous for some well-known products such as the tiles made in the district of Sassuolo and agricultural equipment; the main area of manufacturing of these products lies between Reggio Emilia and the province of Modena. According to Piore and Sabel (1984), this area provides an example of ‘flexible specialisation’. This term refers to companies that focus on a part of the overall production cycle of any product and are able to provide any sort of customisation required by the end market with the help of both dense networks across companies and internal flexibility granted by strong civic traditions (Putnam, 1993).

Changes in working conditions 2002−2004

The 2007 study analyses changes in working conditions at company level by means of a set of basic indicators (Table 1). While improvements in the average employee skills, employee autonomy and control over job tasks, as well as health and safety, are apparent, job effort and particularly work-related stress show a substantial increase. Non-economic incentives, such as training and promotion, show a clear decline, interpreted as an increase in responsibility but with poorer opportunities for reward. A composite indicator, combining various factors, shows a slight decline in overall working conditions due to an increase in various forms of labour flexibility.

Table 1: Changes in working conditions in 2004, compared with 2003, Reggio Emilia (%)
This table shows changes in working conditions in 2004 compared with 2003 in the Reggio Emilia province, according to a set of work-related indicators (%).
Indicators Decline Unchanged Increase
Job effort 7.3 52.1 40.6
Job security 20.3 60.9 18.8
Employee skills and professional profile 11.5 67.2 21.3
Information available to employees 19.8 60.4 19.8
Employee autonomy and control over performed tasks 9.9 70.3 19.8
Influence over managerial decisions 12.5 74.5 13.0
Economic incentives 16.2 66.1 17.7
Non-economic incentives (training, promotion) 19.8 72.9 7.3
Work-related stress 3.7 30.7 65.6
Health and safety at work 15.1 59.4 25.5

Source: Antonioli et al, 2007

Working conditions and flexibility

Table 2 presents an overview of the impact of both working conditions changes and flexibility issues on productivity changes – represented by an index varying from -5 when performance is ‘extremely negative’ to 5 when performance is ‘extremely positive’, and 0 when the performance level is steady. The overall productivity performance is moderately positive, at 1.38, while companies with working conditions above the average level show higher productivity performance than those with below average working conditions.

In general, better working conditions combined with higher employment contract flexibility complement each other in increasing productivity, at 2.06, and thus also the role of employment contract flexibility as a natural selector. Productivity performance is at its lowest (0.80) when working conditions are above average and little use is made of employment contract flexibility, often leading to more ‘static’ companies. According to the authors of the study, no trade off is apparent between forms of flexibility and innovation and performance, or changes in working conditions.

Table 2: Impact of working conditions and employment flexibility on productivity
This table presents an overview of the impact of working conditions changes and flexibility issues on productivity changes, based on an index.
  Employment contract flexibility below average Employment contract flexibility above average Total companies
Working conditions changes below average 1.00 1.50 1.19
Working conditions changes above average 0.80 2.06 1.51
Total companies 0.90 1.88 1.38
  Conversion to permanent jobs below average Conversion to permanent jobs above average Total companies
Working conditions changes below average 1.00 1.43 1.19
Working conditions changes above average 1.37 1.62 1.51
Total companies 1.20 1.55 1.38
  Overall flexibility trend below average Overall flexibility trend above average Total companies
Working conditions changes below average 0.98 1.57 1.19
Working conditions changes above average 1.27 1.78 1.51
Total companies 1.14 1.71 1.38

Note: The impact on productivity changes is represented by an index varying from -5 when performance is ‘extremely negative’ to 5 when performance is ‘extremely positive’, and 0 when it is steady.

Source: Antonioli et al, 2007

Training and innovation

Training has a strong impact on productivity: the overall training index shows that the combination of good working conditions and training noticeably improves productivity. For example, when the proportion of employees involved in training is above average, the impact on productivity is particularly significant (Table 3).

Table 3: Impact of training and working conditions on productivity
This table summarises the impact of training and working conditions on productivity changes, based on an index.
  Overall training index below average Overall training index above average Total companies
Working conditions changes below average 0.63 1.54 1.19
Working conditions changes above average 0.92 1.79 1.51
Total companies 0.90 1.70 1.38
  Training coverage below average Training coverage above average Total companies
Working conditions changes below average 1.02 2.17 1.19
Working conditions changes above average 1.13 2.07 1.51
Total companies 1.07 2.09 1.38

Note: The impact on productivity changes is represented by an index varying from -5 when performance is ‘extremely negative’ to 5 when performance is ‘extremely positive’, and 0 when it is steady.

Source: Antonioli et al, 2007

The impact of innovation and working conditions on productivity is presented in Table 4. Both technological and organisational innovations show a strong positive impact on productivity: 1.86 and 1.93, respectively, when both indexes are above average, and 0.96 and 0.85 when the indexes are below average. Better working conditions do not improve companies’ productivity when overall technological innovation is poor, at 0.82 with respect to 1.10 for poorer working conditions; however, the opposite is true when the organisational innovation index is below average, reflecting 1.02 in comparison with 0.64 for poorer working conditions. Finally, working conditions that are below or above average have no greater or lesser impact on productivity when organisational innovation is above average. However, better working conditions have a positive impact on productivity when technological innovations are implemented, at 2.06 with respect to 1.37 for poorer working conditions. The same holds true when innovations are introduced in the field of information and communication technologies (ICT) – at 1.84 with respect to 1.67 for poorer working conditions.

Table 4: Impact on productivity of working conditions and innovation
This table reveals the impact of working conditions and technological and organisational innovation on productivity changes.
  Technological innovation index below average Technological innovation index above average Total companies
Working conditions changes below average 1.10 1.37 1.19
Working conditions changes above average 0.82 2.06 1.51
Total companies 0.96 1.86 1.38
  Organisational innovation index below average Organisational innovation index above average Total companies
Working conditions changes below average 0.64 1.93 1.19
Working conditions changes above average 1.02 1.93 1.51
Total companies 0.85 1.93 1.38
  ICT index below average ICT index above average Total companies
Working conditions changes below average 0.90 1.67 1.19
Working conditions changes above average 1.00 1.84 1.51
Total companies 0.95 1.79 1.38

Note: The impact on productivity changes is represented by an index varying from -5 when performance is ‘extremely negative’ to 5 when performance is ‘extremely positive’, and 0 when it is steady.

Source: Antonioli et al, 2007

Commentary

According to worker representatives, technological and organisational changes implied an increase of responsibility and thus also an increase in work effort and stress among workers. These features correspond with the Coriat (1995) hypothesis of ‘management by stress’, with workers having to take on more responsibility at work without receiving any significant increase in compensation and incentives or in decentralisation of decision-making and influence over managerial decisions concerning their performance. Furthermore, better working conditions are associated with an overall positive feedback in relation to companies’ innovative practices, thus supporting the view that a feeling of harmony exists between workers and employers when high performance work practices are introduced.

References

Antonioli, D., Delsoldato, L., Mazzanti, M. and Pini, P., Dinamiche innovative, relazioni industriali, performance nelle imprese manifatturiere [Innovative dynamics, industrial relations, performance in manufacturing companies], Milan, Angeli, 2007.

Coriat, B., ‘Incentives, bargaining and trust: Alternative scenarios for the future of work’, International Contributions to Labour Studies, Vol. 5, 1995, pp. 131–151.

Pini, P. (ed.), Innovazione, relazioni industriali e risultati d’impresa. UN’analisi per il sistema industriale di Reggio Emilia [Innovation, industrial relations and company performance. A survey of Reggio Emilia manufacturing companies], Milan, Angeli, 2004.

Piore, M. and Sabel, C., The second industrial divide. Possibilities for prosperity, New York, Basic Books, 1984.

Putnam, R.D., Leonardi, R. and Nanetti, R.Y., Making democracy work: Civic traditions in modern Italy, Princeton, New Jersey, Princeton University Press, 1993.

Mario Giaccone, Fondazione Regionale Pietro Seveso

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