Quit Rates and the Impact of Participation, Profit‐Sharing and Unionization: Empirical Evidence from UK Engineering Firms
| Author | John R. Cable,Nicholas Wilson,Michael J. Peel |
| DOI | http://doi.org/10.1111/j.1467-8543.1990.tb00363.x |
| Date | 01 July 1990 |
| Published date | 01 July 1990 |
British Journal
of
Industrial Relations
28:2
July
1990 0007-1080
$3.00
Quit
Rates
and
the
Impact of
Participation, Profit-sharing and
Unionization
:
Em
pi rica
I
Evidence from
UK Engineering Firms
Nicholas Wilson,
*
John R.Cablet and Michael J.
Peel#
The aim
of
this paper is to investigate empirically the effects of alternative
employee participation mechanisms within the firm on the rate
of
voluntary
labour turnover (quits) by a detailed analysis of a micro-level database
drawn from
the
engineering industry. In controlling for employee ‘voice’ in
firm-level decision-making we take into account dimensions
of
union
presence and
‘de-jure’
schemes for employee involvement in decision-
making, and we devise a measure of employees’ ‘perceived’
(de
facfo)
participation from interview responses. In addition, tbe extent
of
employee
financial participation through profit-sharing, share ownership and fringe
benefits are
key
variables used in our model determining quits. In order to
separate out the relative contribution of these variables on the rate
of
voluntary separation, we estimate regression models which include a large
number of other control variables suggested by the literature as determin-
ants
of
a firm’s quit rate.
1.
INTRODUCTION
The idea
of
employee share ownership and participation in decision-making
has again been gaining popularity, buoyed by
tax
breaks and a spectrum
of
political and academic support. Much has been claimed for the benefits of
such schemes at the company level, not least the positive effects on company
performance owing to lower staff turnover and higher motivation and
morale. Several studies have provided evidence
of
the effects
of
‘participa-
tion’ on enterprise productivity and profitability (e.g. Cable and Wilson
1989)
and, through the use of employee attitude surveys, on morale and
*University
of
Bradford Management Centre
tDepartment
of
Economics, University
of
Aberystwyth
$Cardiff Business
School,
University
of
Wales
198
British
Journal
of
Industrial Relations
motivation (e.g. Bell and Hanson
1984).
This paper, however, attempts
to
test directly for the effects
of
such schemes on voluntary labour turnover
(quits), reductions in which are often regarded as symptomatic
of
an
improved all-round performance.
In this paper we analyse variations in the average quit rate experienced by
a sample
of
52
firms producing within a narrow product range
of
the
UK
engineering industry. Hence, we control for industry-specific characteris-
tics, while attempting to isolate the determinants of quits in terms of firm-
specific characteristics, at the same time controlling for labour market
conditions. We concentrate on isolating the impact
of
remuneration
schemes (including fringe benefits, share ownership and profit-sharing), the
extent
of
employee involvement in decision-making, and the impact
of
union and other ‘voice’ mechanisms on permanent labour withdrawal. The
empirical work is, then, based
on
a small but data-rich panel
of
firms over the
years
1978-82,
which enables
us
to control for a wide range of (previously
neglected) variables which might affect quits (as suggested by the
empiricaVtheoretica1 literature).
The remainder of the paper is organized as follows. In Section
2
we discuss
the theory and evidence pertaining to quits but focus particularly on several
dimensions of the main variables of interest. Section
3
then outlines our
data, model specification and theoretical expectations, while Section
4
presents the empirical results. Section
5
concludes with a summary
of
the
salient points from the empirical analysis in the context
of
other recent
studies and policy perspectives.
2.
THEORY AND EVIDENCE ON
QUITS
In this section we consider the key variables that have been shown to
be
related to inter-firm and inter-industry variations in labour turnover
by
previous research. More specifically, we examine some
of
the implications
relating to the impact of profit-sharing, share ownership (which we consider
in the context of the total remuneration package) and employee participa-
tion on employee retention. In particular, with regard to the latter, we
investigate the hypothesis
of
the ‘exit-voice trade-off‘ in the labour market,
introduced by Hirschman
(1970)
and applied by Freeman and Medoff
(1984).
We do this by taking into account the effects
of
unions and the extent
of
employee participation in decision-making (see Spencer
1986).
After
developing our theoretical framework, we highlight the possible determin-
ants
of
turnover, as suggested by previous work, which we include as control
variables in
our
empirical analysis. A full list
of
the explanatory variables
used in the study (together with their definitions)
is
given in the Appendix.
A
fuller discussion
of
the existing theoretical and empirical evidence pertain-
ing to the list
of
control variables and their expected influence can be found
in Wilson and Peel
(1989).
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