Employee Participation and Wages: An Empirical Investigation with Selectivity Correction

This paper analyzes the relationship between employee participation in work teams, profit sharing and consultation between employees and management, and wages. It uses matched employeeestablishment data from the British economy. It takes explicit account of selectivity that arises from self-selection of employees into their preferred establishments and selective adoption of participatory practices by employers. The estimates indicate wage premium for the employees who work in establishments with participatory practices. The selectivity appears to be an important factor in the relationship between employee participation and wages. The estimates without selectivity correction suggest a lower wage premium than that suggested by selectivity corrected estimates. The selectivity corrected estimates show that employees in establishment with any one, two or all of the participatory practices earn a wage premium of 18%, 32.7% and 55.1%, respectively. The estimates of the interaction model of participation and education indicate that an extra year of education earns lower wage premium in establishments with participatory practices than in establishments with no participatory practice. This finding suggests that the equalizing effect of employee participation can reduce wage inequality between high and low educated employees