Effect of family friendly practices on labor productivity

December 21, 2017 Environmental Studies

After controlling for management and other control variables, the relationship becomes insignificant. Moreover, the relationship between FEW and labor productivity is not conditional on gender distribution, skill level of employees and quality of management. 2 Introduction: Strategic human resource management has been associated with increase in labor productivity. Extensive study is being conducted to investigate the relationship between human resource policies in addition to operations management and the profitability and performance of the firm.

Most interestingly, innovative approaches such as family friendly practices have caught hold of academic interest in the field of management. Family friendly workplace practices (FEW) include practices such as flexible hours, the ability to working from home, Job sharing ability, provision of childcare flexibility and feasibility, maternity leaves and many others. Basically, these practices aim to help the employees to achieve and maintain work life balance. The application of family friendly workplace practices in an organization depends on which organizational communication theory prevails.

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According to McGregor Douglas, managers should conceptualize workers as motivated by higher order needs in Mascots hierarchy (CTD. In Miller). He asserts that they should be treated as a humans with feelings rather than Just a factor of production. Furthermore, the human resource approach recognizes the cognitive and intellectual contribution of employees towards meeting organizational goals. This approach recognizes the human aspects of workers such as feelings, need for love, family and social responsibilities.

Moreover, this approach is based on the belief that if higher order needs of workers are met, they old contribute towards meeting organizational goals more productively and creatively. Family friendly workplace practices provide employees with incentives in order for them to be able to manage their work and family life in a better way. This will bring out their intellectual abilities and enable them to perform their duties in a creative and innovative manner, hence, benefiting the organization. A detailed account of other benefits and costs of FEW is 3 discussed in the next section.

In this paper, we study the impact of family friendly workplace practices on the productivity of labor. Through an empirical analysis, we have investigated the impact of FEW at workplace using the data of four different countries I. E. US, I-J, France and Germany. The nature and structure of data is discussed the section “Description of Data” below. The structure of the paper is as follows: In the next section, we present a summary of prior work that has been done on the subject. A derivation of testable hypothesis on the factors affecting labor productivity including the effects of FEW is then followed by a detailed description of data.

Next, we discuss our findings from the econometric analysis and derive a conclusion. Literature Review: Since human capital is considered a potential firm resource, there has been an increasing interest of scholars in the effectiveness of strategic human recourse management. A number of theories have been formulated for increasing the productivity of labor in order to cut costs and augment firm’s profitability. Good management practices such as operations management, monitoring section, targets and incentives (Bloom and Renee) have strong and positive correlation with firm performance(Miller).

Moreover, prior work has shown that general “management attitudes, policies and practices which aim to develop workforce skills, commitment and motivation”are positively associated with improvements in the labor productivity(Hodgkin). Similarly, family friendly workplace practices have also been found to have positive relation with the profitability of the firm. Heywood states that the relationship between family friendly management and firm’s productivity is “stronger where the workforce is highly committed. ” Such practices will further reinforce the “relationship between commitment and key 4 economic outcomes” (Heywood, Gibbers and Wet).

Moreover, family friendly workplace practices generally form a part of a bundle which is more focused on the extent to which policies are implemented rather than individual policies (Perry-Smith and Blue). Also, the relationship between such bundles and firm performance is stronger for older firms and firms with higher proportion of female workers (Perry-Smith and Slum). On the contrary, Bloom found that the positive relation with firm profitability measures such as firm’s ROCK is weak and is not influenced by gender after the quality of management is controlled for.

However, family friendly workplace practices are expensive as compared to other management practices in terms of return. They’d not have a direct impact on the profitability of the firm, rather they “enhance the ability of employees to combine working and personal life” (Bloom, Seersucker and Renee). As mentioned above, human resource theorists believe that employees become more creative and productive when their higher level needs are met (Miller). Similarly, Douglass theory Y manager also believes that workers are motivated to satisfy their achievements and self-actualization needs (CTD. Miller). He states that “behaviors stemming from” such management practices will “lead to more satisfied and more productive workforce” (Miller). Mascots hierarchy of needs consists of five basic needs that motivate humans. These needs constitute lower level needs consisting of physiological, safety and “affiliation” needs and higher level needs consisting of the needs for esteem and self- actualization(Miller). Based on this hierarchical model, one can only satisfy a higher order need after he has fulfilled the needs that lie below in the pyramid.

Evidently, workers can only tend to satisfy their achievements and acclimatization needs once their physiological, safety and most importantly, affiliation needs have been fulfilled. Based on this, it can be argued that family friendly workplace practices contribute 5 towards improving labor productivity through the fulfillment of affiliation needs of the workers by helping them in achieving work life balance. Nevertheless, all of the firms do not readily employ FEW despite the findings of the research suggesting a positive relationship of FEW with firm’s profitability.

There can be a number of reasons that determine if a firm will adopt FEW or not. Past work has shown that firms with a higher proportion of skilled workers and female managers offer more FEW (Bloom, Seersucker and Renee). Moreover, firms who have better management practices in place offer more FEW (Bloom, Seersucker and Renee). Economic analysis and Hypothesis: Family friendly workplace practices can have two types of outcomes. Primarily, good management is based on two concerns; the concern for production and concern for people (Miller 49).

So, firms may adopt certain management practices to fulfill either of those concerns. Nevertheless, the ultimate objective of an organization is profit minimization. Hence, the concern for people can also be motivated by the concern for production through corporate social responsibility. Correspondingly, FEW can result in either improved productivity or improved work life balance for the employees. Firms employing these practices might do so in the concern for people, however, they would intend to materialize this through increased labor productivity and creativity.

As mentioned in the previous section, a positive relationship is found between firm’s profitability and FEW (Heywood, Gibbers and Wee)which becomes weaker after the management best practices are controlled for (Bloom, Seersucker and Renee). As a projection of this finding, we study the direct impact of FEW on labor productivity alone. The basic economic model of the analysis is: 6 where Labor Productivity measured as log of sales per employee An index of FEW (listed in Table 1) An index of Management best practices c Control variables

The index variables of both FEW practices and management practices are discussed in the section “Description of data” below. Hypothesis: We expect that the effect of management best practices (M) on the productivity of labor (LAP) will be positive. Hence: Hypothesis 1: The relationship between labor productivity and management practices is positive. ODL/DMS O Further, we expect that the provision and extent of family friendly workplace practices (F) to be positively correlated with labor productivity (LAP) as well. FEW will provide the employees with an opportunity to manage their work life balance in a better way.

They will enable the workers to perform their non-work roles more conveniently and fulfill their affiliation and esteem needs through healthy family relationships. For example, a worker is likely to perform her Job with greater interest towards the organizational goals if the organization provides him/her with flexibility in working hours for childcare or altercate. Similarly, offering maternity and childcare leaves to female workers is likely to increase employee retention and will save the firm from the cost of hiring and training new employees.

So, our second hypothesis is: Hypothesis 2: The relationship between labor productivity and family friendly workplace practices is positive. ODL/UDF O 7 Moreover, based on above discussion and examples, it can also be argued that the impact of FEW will be greater for female workers as opposed to male workers. This is because females are more involved in family and caring duties such as childcare, altercate, etc. Hypothesis 3: The positive relationship between labor productivity and family friendly workplace practices is stronger for females than ales.

In addition to proportion of female employees, the effectiveness of family friendly management might depend pointer firm specific characteristics including the quality of management skill level of employees. As stated in the previous section, well managed firms with best management practices in place are more likely to adopt FEW as compared to badly managed firms (Bloom, Seersucker and Renee). Hypothesis 4: The positive relationship between labor productivity and family friendly workplace practices is stronger for well managed firms.

Moreover, FEW will be more effective for more skilled employees, for example, employees with a college degree because they would have more exposure to human behavior, human resource management, social corporate responsibility and environmental studies. Hypothesis 5: The positive relationship between labor productivity and family friendly workplace practices is stronger for firms with more skilled labor. In the next section, a detailed description of data is provided before presenting the results from the econometric analysis.

Description of Data: In this section, first we describe the variables of interest and present their descriptive statistics. Then, we analyze the variation of some important variables within industries and countries. 8 We have obtained our data set from a previous research conducted by Nick Bloom (Stanford University), Tibias Seersucker (University of Munich) and John Van Renee (London School of Economics) on the effects and determinants of family friendly workplace practices (FEW).

The focus of the study was to determine two things. Firstly, the relationship of FEW and firm’s profitability and secondly the determinants f FEW at a workplace to analyze which firms are more likely to follow family friendly workplace practices (Bloom, Seersucker and Renee). The nature of data is cross-sectional consisting firms belonging to four different countries I. E. France, Germany, USA and I-J and 25 different industries. The industries included consist of Medical, Textile, Aircraft, Radio, Television and various others.

A summary of key variables is presented in Table 2. The data consists of an index variable for FEW named guffaw which we have used in our regression analysis. This index variable has been constructed by calculating a double z-score using the following factors: total hours worked per week (management and non-management hours), holidays per year, childcare flexibility, childcare subsidy, working from home, Job switching and Job sharing.

First, the z-score of individual factors (X’) are calculated by the following formula:(Bloom, Seersucker and Renee) After that, z-score of the sum of all the z-scores of individual factor was calculated based on the following formula: (Bloom, Seersucker and Renee) Uzi 0 zoo 9 The intuitive interpretation of the z-score of FEW is such that a “one-unit change in an independent variable will lead to a change of standard deviations in the FEW score” (Bloom, Seersucker and Renee).

Similarly, the variable commandment is a double z-score for Management practices using the variables for average lean manufacturing techniques, average management score, average performance measures and average talent measures. Other control variables used in the estimation consist of proportion of females in the workforce, GE of the firm, skills of employees, growth/fall rate of employment and other functional forms of these variables. A summary of descriptive statistics including the mean value and standard of all these variables is presented in Table 2.

Moreover, Table 3 comprises of the correlation matrix of all the variables of interest. In our regression analysis, we have controlled for country and industry specific effects by including three country dummy variables and 24 industry dummy variables. As a result of this, the variation of variables such as skills, female proportion and management practices within particular industry will be reduced resulting in larger vary(џ) and hence, low statistical significance of independent variables. Table 5 and shows the variation of variables within industry and country respectively.

Econometric analysis: In this section, we describe our regression analysis and our findings from the empirical analysis. Table 7 presents the results of our regression models. To address our main research question and hypothesis, we have used log of 10 sales per employee as a measure of labor productivity and the double z-score of all the family friendly workplace practices which was instructed as described in the previous section. To begin with, the correlation between FEW score and log sales per employees is 0. 0744 which is shown in Table 3.

This low positive correlation and a scattered of FEW and log sales per employee (Figure 1) does not show any notable relation between FEW and labor productivity which will be further tested through regression analysis. However, the slope coefficient from model 1 is statistically significant at 10% level of significance after we control for country and industry fixed effects using dummy variables. However, the results from this model are biased and inconsistent because there are a lot of other variables that are related with both log sales per employee and FEW, for example, management.

As stated in the “Literature Review’, prior work has found that management practices to develop workforce skills, commitment and motivation positively associated with firm’s productivity (Hodgkin). Moreover, past work has also found that management practices are correlated with the provision of FEW in an organization (Bloom, Seersucker and Renee). So, we add the z-score of management practices in our regression model 2 which renders the efficient of guffaw statistically insignificant.

This implies that after we control for the quality management practices at the firm, the effect of FEW does not remain significant which supports the hypothesis that FEW are offered coupled with good management. We further control for the proportion of females, skills of workforce and growth rate of employment in the organization to correct for omitted variable bias. The rationale behind adding these variables was to check for the effect of these variables in the effect of FEW as they can be related with the family friendly environment in the organization.

Throughout our analysis, we have found Figure 1 11 strong support for our hypothesis 1 as the coefficient for management remains statistically significant in all the models. ODL/DMS O. A 1 standard deviation in the composite z-score of management will result in an increase of log sales per employee by 0. 0799, according to model 7. This is an approximate change of 7. 99% in the sales per employee and an exact change of 100*(e. 0799 -1) = 8. 317%. Hence, management practices such as operations management, monitoring and talent measures taken by the employees have positive impact on he productivity of labor.

Furthermore, we have not found empirical support for hypothesis 2, I. E. Positive relationship between FEW and labor productivity. The coefficient for FEW has remained insignificant throughout, implying that FEW do not have an individual effect on labor productivity after we control for quality of management practices, gender proportion, skill level, etc. ODL/UDF = O. Based on this, we conclude that family friendly practices do not improve the productivity of labor significantly setters Paramus. Nevertheless, a t-test of the coefficient with an alternate hypothesis of


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