Workplace Organization and Innovation

This study uses data on Canadian establishments to test whether particular organizational structures are correlated with the likelihood of adopting process and product innovations, controlling for the endogeneity of the predictors. We find that establishments with decentralized decision-making, information-sharing programs, or incentive pay plans are significantly more likely to innovate than other establishments. Larger establishments and those with a high vacancy rate are also more likely to innovate. These findings are consistent with a model in which workers hold information about production inefficiencies or consumer demands that can lead to productive innovations and that workplace organization attributes facilitate the communication and implementation of those ideas.