Labour Productivity at the industry level as a determinant of Job Satisfaction

Labour productivity, as a measure of performance, is an essential indicator for workers, organizations, industries and governments. As economic theory suggests, if labour productivity increases, this translates into higher... [ view full abstract ]

Labour productivity, as a measure of performance, is an essential indicator for workers, organizations, industries and governments. As economic theory suggests, if labour productivity increases, this translates into higher compensation for workers, usually in the form of wages; organizations and industries increase their profits, as they become more competitive, and governments raise more revenue from taxes. Therefore, higher labour productivity leads to economic growth, which is perceived to drive material wellbeing upwards. However, material and emotional wellbeing are not synonymous.While global economies focus on continuous productivity growth, the question of whether productivity is positively related to workers’ wellbeing has received less attention. 

This paper explores this relationship, by examining the effects of industrial labour productivity on job satisfaction in an inter-industry, cross-country analysis. This is done by matching data from the EU KLEMS for industrial labour productivity levels in 2009 for 33 industries of the economy with data for job satisfaction in 2010 from the European Social Survey (ESS5) for eight European countries. The research was motivated by the special case of the personal services sector, which includes education, healthcare, arts and other personalized services, such as hairdressing. This labour intensive sector has low labour productivity, due to the handicraft element of its operations and the necessity for human interaction that cannot be substituted by technological innovation. Since it makes use of a so-called affective labour that is mission oriented, it is characterised by relatively high levels of job satisfaction, despite the low remunerating rewards that its workers receive.

To estimate the relationship between labour productivity and job satisfaction, an ordered probit model is employed in an econometric analysis, regressing job satisfaction on industrial labour productivity and controlling for all other factors that help explain the level of job satisfaction, namely demographic, intrinsic, extrinsic and employment characteristics. This on of the few studies that address the relationship between job satisfaction and industrial labour productivity by matching individual and industry level data for a group of advanced economies, hence providing a sector analysis in an international perspective. Therefore, with its innovative method, it contributes significantly to the job-satisfaction-labour productivity literature.

The findings reveal that the relationship is negative, mainly driven by organizational attitudes and the form of production systems in the west. The policy implications from this finding suggest that there is a great need in our times for investment in skills and training at the personal services sector that provide high job satisfaction, despite its small contribution to the total output of the economy and its growth. Since governments measure what they value the most, it is crucial to motivate a structural change towards economic measures that prioritize emotional wellbeing over material wellbeing. The first step would be to keep national accounts of wellbeing. Identifying human evolution solely by the level of total output and its growth and relentlessly pursuing increases in labour productivity have a negative impact on the emotional wellbeing of workers, as found by this analysis and therefore the ruthless pursuit of productivity growth should be abandoned.