Labor-Management Relational Capital

Using novel data from surveys on randomly selected establishments, which ask common questions to employees and management about their relationship, we show that labor-management relational quality enhances profitability, labor productivity, and retention. We define relational quality based on the distance of numerical answers of employees from those of management. We exploit within-stratum-year variation in relational quality, which is random, to predict outcomes in the next survey year. Neither answers of employees nor management predict outcomes, implying the significance of evaluating bilateral ESG factors bilaterally. The results are driven by the cultural dimension of relational quality and establishments that offer job training to rank-and-file employees