It’s well known that UK plc faces a crisis in productivity. A solution that needs more attention is workplace participation. When people have more autonomy in how their workplaces run, they are more motivated to put in effort. If you know that your employer – especially if it is a faceless corporation – is going to take all the benefits of your work, you probably are not going to try as hard in your job as you would if the gains were shared fairly. This is nothing new to economic theory: Adam Smith saw the connection between fairness and productivity in 1776, Alfred Marshall saw it in 1895, and now we have good evidence from behavioural economics. If the UK wants to boost productivity, to catch up with the leaders in Europe, but without the risk of the extreme inequality that we see in the United States, binding legal rights for workplace participation are a good way to start.

                As it turns out, one of management science’s best known studies – the “Hawthorne experiments” – first shed light on the importance of workplace participation for productivity. Shedding light on participation was not, however, the intended consequence. It began in 1924, led by an Australian researcher at Harvard Business School called Elton Mayo. Originally, Mayo wished to get evidence for the odd hypothesis that more lighting intensity would make workers work harder. To test this out, he borrowed five factory workers from the Hawthorne Works of the Western Electric Company and brought them to an observation laboratory. They would work as normal, assembling telephone relays, as Mayo’s two research colleagues fiddled with the light switches. Unfortunately for Mayo, this had no effect. Not ready to give up, Mayo’s team tried something new: they varied rest breaks, lunches, and daily working times. But this time, the key was that Mayo’s observers were instructed make the workers feel comfortable, and stay out of the way of the workers work as much as they could, to avoid ‘contaminating’ the test environment. So, the observers asked the workers themselves to decide which breaks and working times would suit them, and other things like the meals they would prefer. Otherwise they stayed out of the way. The fascinating result was that productivity went up when breaks were introduced, when meals were given, and also when an hour was taken off the day. But even more curious, productivity continued to improve when (with the participation of the workers in the decisions) all these benefits were removed.

                The proper interpretation of the Hawthorne experiments has long been debated and it remains one of the most important experiments in workplace psychology. Mayo himself published all the data, and wrote up various results, but never quite found what he was looking for: how managers can make employees work harder, unilaterally. But later, other people who looked at the experiments found something else. The ‘Hawthorne effect’, a term first been coined by the renowned economist Herbert Simon, was said be that ‘the very act of observing people in organizations and making them the subject of study and experimentation may well change their attitudes and behavior’. ‘We now have,’ said Simon,

 

a considerable body of evidence to support the participation hypothesis—the hypothesis that significant changes in human behavior can be brought about rapidly only if the persons who are expected to change participate in deciding what the change shall be and how it shall be made. (Simon (1955))

 

In 1968, sociologist called Paul Blumberg also looked back at the archives Mayo left, and highlighted the one absolutely solid finding. Workers in the test lab consistently outperformed those who stayed in the factory in productivity. Even stranger, the workers seemed happier at work, and began to socialise with each other more after their shifts. Among the interviews were several statements about how they were glad to escape the authoritarian managers back at the factory. Blumberg argued that Mayo had never thought this was important, or written about it, because his main objective was to show how workers can be made productive, so that employers can take all the gains. But like Simon said, the Hawthorne workers were more productive because they gained the ability to participate in workplace decisions. Even when benefits were taken away, the act of joining people in the process of decision (because it was genuine) meant that the staff had a reason to want to work more effectively. Productivity only dropped as the experiments continued toward 1932, and involvement in workplace decisions was removed. Workplace participation improved productivity, and lack of it did the reverse.

                In the last ten years, the growing field of behavioural economics has piled on the evidence. To give just two examples, on the negative side, a study by researchers at the ‘Institute for the Future of Work’ has shown that when managers unilaterally change people’s terms of employment, especially by cutting their pay, productivity drops dramatically (Cohn et al (2014)). On the positive side, another study has shown there can be significant productivity gains when employees are delegated control over how wages will be shared in the enterprise (Charness et al (2012)). It shows that the connection between fairness and productivity is intrinsic, and that the best way to get fair treatment is when employees have the right to participate in workplace governance.

                So how can you achieve employee participation in workplace governance? The most direct route is through work councils with binding rights and in a corporation, votes for the board of directors. In the UK, we often forget that we have had it in universities for hundreds of years. To take just one example, the Cambridge University Act 1856 says that staff can vote for the governing council, and even pass resolutions (a ‘grace’) that instructs the governing bodies. In private companies, it appears that Winston Churchill might have introduced the world’s first employee participation law, even before well known systems like Germany (McGaughey (2015)). The Port of London Authority Act 1908 gave employees the right to elect one director on the board. One of the sadder twists in British history is that these experiments did not continue on a larger scale after World War One, as they did across northern Europe. The Conservative Transport Minister proposed that railway employees should be able to elect one third of each board of directors in 1920. But the Cabinet memoranda (that until recently were confidential) show that they could not overcome the entrenched opposition of existing managers on one side, and those who wanted nationalisation (and nothing else) on the other. It’s one of those peculiar areas of policy where at one time or another everyone from one nation conservatives to liberal progressives to Fabian socialists have agreed on the evidence: more voice at work leads to more economic freedom, less inequality and – most pressing right now – more productivity. It’s just a question of who will actually have the vision to get it done.

 

References:

• P Blumberg, Industrial Democracy: The Sociology of Participation (1968) chs 2 and 3
• G Charness, R Cobo-Reyes, N Jiménez, JA Lacomba and F Lagos, ‘The Hidden Advantage of Delegation: Pareto-improvements in a Gift-exchange Game’ American Economic Review, (2012) 102(5) American Economic Review 2358
• A Cohn, E Fehr, B Herrmann and F Schneider, ‘Social Comparison in the Workplace: Evidence from a Field Experiment’ (2014) 12(4) Journal of the European Economic Association 877
• Liberal Party, The Report of the Industrial Partnership Committee: Partners at Work (1968)
• A Marshall, Principles of Economics (3^rd edn 1895) Book VI, ch 4 (n.b. hyperlink is to 8^th edition)
• E Mayo, The Human Problems of an Industrial Civilization (1933)
• Ministry of Transport, Outline of Proposals as to the Future Organisation of Transport Undertakings in Great Britain and their Relation to the State (1920) Cmd 787
• E McGaughey, ‘British Workplace Participation and Employee Share Schemes’ (2014) UCL Labour Rights Institute On-Line Working Papers – LRI WP 2/2014
• E McGaughey, ‘The codetermination bargains: the history of German corporate and labour law’ (2015) LSE Legal Studies Working Paper 10/2015
• E McGaughey, ‘Can behavioural psychology inform labour law?’ in A Ludlow and A Blackham (eds), New Frontiers in Empirical Labour Law Research (2015) ch 6. Also in LSE Legal Studies Working Paper 20/2014.
• Railways Bill, Memorandum for the Cabinet by the Minister of Transport (March 1921) CP 2749
• HA Simon, ‘Recent Advances in Organization Theory’ in SK Bailey, Research Frontiers in Politics and Government (1955) ch 2
• A Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776) Book I, ch 8, §43
• S Webb and B Webb, The History of Trade Unionism (1920) 760, Appendix VIII