What’s Driving the New Economy?: The Benefits of Workplace Innovation

Abstract

The current economic recession in the United States has challenged the sustainability of the so-called New Economy productivity miracle. This paper introduces the idea that, in addition to investment in information technology, changing workplace organization has been a significant component of the turnaround in productivity growth in the U.S. during the 1990s. Using a nationally representative sample of U.S. businesses surveyed in 1993 and 1996, we examine the relationship between workplace innovations and establishment productivity to assess the potential endurance of strong labor productivity growth into the future. Our work goes beyond measuring the impact of computers on productivity and examines how other types of workplace innovation such as self-managed teams, incentive pay, and employee voice are related to labor productivity. These practices could explain a large part of the movement in multi-factor productivity in the United States over the period 1993-1996. We also show how these results are affected by the union status of a firm. While European countries have invested in varying degrees in information technology, these results suggest additional dimensions to the recent productivity growth in the US that may well have implications for productivity growth potential in Europe.