Complementarities Between Employee Involvement and Financial Participation: Do Institutional Context, Differing Measures, and Empirical Methods Matter?

The authors investigate whether productivity is greater if firms use employee involvement (EI) in decision making and financial participation (FP) as complementary practices. Based on representative panel data from Finnish manufacturing firms, the study uses diverse specifications to examine different theoretical explanations of the productivity effects of complementarities. The authors find virtually no evidence to support the theory of complementarities when EI and FP are simply measured by their incidence. They do find some evidence for complementarities using cross-sectional data (controlling for several covariates that related work has found to be important for firm performance) and also when analyses use measures of the intensity of FP. In accounting for differences in empirical findings across varying settings, the findings suggest that outcomes depend on the institutional context and are sensitive to variation in measurement and analytical methods. JEL Classification: D22, D24, J24, J54, L25, L60, M5