Trust and Workplace Performance

AuthorPaulino Teixeira,John T. Addison
Publication Date01 Dec 2020
British Journal of Industrial Relations doi: 10.1111/bjir.12517
58:4 December 2020 0007–1080 pp. 874–903
Trust and Workplace Performance
John T. Addison and Paulino Teixeira
Using European Company Survey data, this article explores the relationship
between trust and establishment performance under works councils, on the
one hand, and union bodies on the other. Trust is initially measured using
the individual survey respondent’s assessment of the ‘contribution’ of the other
side. Although the rating of the employee representative is favoured over that
of management as less subject to feedback from performance, the potential
endogeneity of employeetrust in management is also modelled. Next, a preferred
inverse measure of trust (or dissonance) is constructed from the discrepancy
between the assessments of the two sides of the quality of workplace industrial
relations. Employee trust is associated throughout with improved establishment
performance, and conversely for the dissonance counterpart. In their presence,
neither type of workplace representation is superior to the other.
It can be plausibly argued that much of the economic backwardness in the world
can be explained by the lack of mutual confidence. (Arrow 1972: 357)
1. Introduction
Trust or social capitalcan be viewed as a propensity on the part of individuals
in society to cooperate and, by avoiding the snare of a prisoner’s dilemma,
helping to improve the performance of a society’s institutions. For example,
trust is said to facilitate economic growth because people who trust one
another are more likelyto cooperate in trade innovation and entrepreneurship,
and the converse in circumstances of widening income inequality. More
dramatically, the decline in the share of people trusting one another as revealed
in social surveys has been viewed as a profound threat to the successful
maintenance of democracy (see Putnam 1995). And yet despite the seemingly
central relevance of the concept to workplace relationships, most economic
John T. Addison is at the University of South Carolina, and the University of Durham. Paulino
Teixeirais at the University of Coimbra.
2020 John Wiley & Sons Ltd.
Trust and Workplace Performance 875
discussions have eschewed consideration of the empirical importance of
employee trust in management for firm performance.
The present article addresses this neglected trust-firm performance nexus,
using cross-country data from the 2009 and 2013 waves of the European
Company Survey (ECS). Three measures of trust are identified: first, the trust
of management in its employee representation body (either a works council-
type entity or a union); second, the trust of the employee representation
agency in management; and, third, a bilateral measure exploiting dierences
in the perceptions of the two parties. The outcome indicators are subjective
measures of the establishment’s economic/financial performance and its
relative labour productivity provided by management.
A two-part thematic review of the sparse economic literature examining
the theory and practice of trust at the workplace is provided in
Section 2. Next, Section 3 outlines the formal model and summarizes
the expected relationships between institutions, trust and the performance
indicators. Section 4 describes the unique cross-country dataset(s) and the
construction of the key dependent and independent variables. Presentation
of our detailed findings follows in Section 5. Section 6 concludes.
2. Trust and workplace performance: theoretical and empirical background
Theoretical Remarks
There are three interwoven strands that contribute to an understanding of
the role of trust and workplace institutions: implicit contracts, collective voice
and organizational commitment. Contract theory covers the implied trust
between the parties and examines the formation of contracts in the presence
of asymmetric information that arises when one party to an economic
transaction has greater substantive knowledge than the other. The literature
illustrates how implicit contracts can cope with asymmetric information to
make truth revelationthe appropriate strategy (by restricting the choices open
to the firm), while dealing with the enforcement problem (bypenalizing fir ms
that renege on futurecontract delivery through a reputation eects mechanism
that results in their having to pay a permanently higher wage).
As initially developed, there was no mention of worker representation
agencies in contract theory. Contracts were viewed as either automatically
self-enforcing or accompanied by a non-union governance apparatus with
procedural safeguards. The key elements of the latter were the use of
promotion ladders, formal grievance procedures and the application of the
seniority principle. The characterizationof the union as a commitment device
was first advanced by Malcomson (1983) in discussing a situation in which
uncertainty in the form of product market demand shocks encourages the
use of contingent contracts to allocate risk between risk-averse employers
and workers. Although such contracts are unenforceable because neither
the courts nor the workers can observe the state of the world, unions can
provide workers with more accurate information about the state of nature.
2020 John Wiley& Sons Ltd.

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