The Last American Shoe Manufacturers : Decreasing Productivity and Increasing Profits in the Shift from Piece Rates to Continuous Flow Production

This study examines the economic effects of changes in a group of managerial policies, a key element of which was the switch from piece rate to time rate modes of compensation, in one of the last remaining firms in the U.S. shoe industry in the 1990s. The firm, which we call 'Big Foot' (BF), entered the 1990s using a set of human resource policies that included piece rates to motivate workers, which induced relatively high productivity. But, faced with severe foreign competition, it switched to time rates and associated managerial policies, which produced higher profits despite lowering productivity. The reason profits increased is that time rate-related labor management policies reduced labor and other costs by enough to offset a fall in productivity. Data for shoe manufacturing from the Longitudinal Research Data (LRD) files of the U.S. Census show, more generally, that establishments with high labor costs and relatively many nonproduction workers, both of which are associated with management policies that often include piece rates, had lower rates of survival in this period than other establishments. Our finding that labor management policies associated with piece rate compensation can raise productivity but lower profitability is consistent with the broad decline of piece rate pay in advanced economies