How industrial relations affects plant performance: The case of commercial aircraft manufacturing.(Statistical Data Included)

MORRIS M. KLEINER, JONATHAN S. LEONARD, and ADAM M. PILARSKI (*)

This analysis examines how changes in major industrial relations policies affected productivity over the years 1974-91 at one of the most important manufacturing plants in the United States. The authors find that productivity fell greatly, both in percentage terms and in absolute dollars, during strikes and a slowdown and during the terms of office of tough union leaders. In contrast with much of the firm performance literature, they find only small initial productivity effects of a movement from adversarial labor-management relations, which is the norm in this industry, to total quality management (TQM) and back again. How and why TQM is adopted, the authors suggest, may be as important as whether it is adopted. Finally, major industrial relations events like strikes, a slowdown, and the TQM program did not have long-term productivity effects; the firm returned to pre-event levels of productivity within one to four months.

Unionism per se is neither a plus nor a minus to productivity. What matters is how unions and management interact at the workplace.

Richard B. Freeman and James Medoff, What Do Unions Do? (1984)

The productivity impact of industrial relations events has important implications for the health of both unions and firms. This paper examines how changes in industrial relations policy spanning the spectrum from cooperation to conflict affected productivity at one of the most important manufacturing plants in the United States over a period of almost two decades. Our strategy for gaining insight into this fundamental issue is to conduct formal statistical tests conditioned and qualified by firm-specific knowledge we gleaned from interviews with production managers and union leaders.

We use information gathered from a large U.S. commercial aircraft manufacturing firm during a period when the United States dominated world production in this industry. The firm agreed to give us information from its main management information system database, with the condition that we not use its name in our study. We call the company Big Plane, or BP. One advantage of our information relative to data gathered from surveys (for example, the Census of Manufactures Longitudinal Research [LRD] Database file) is that we would expect it to be more accurate and detailed. In general, firms have a strong incentive to check the quality of internal data, since such data are gathered at considerable cost to the firm and are used for making policies within the organization as well as for developing corporate strategies.

We examine industrial relations practices within the framework of a production function analysis. A unique aspect of our study is the opportunity to examine the impact of industrial relations within the firm by reducing unobserved heterogeneity in production, a problem that has plagued other studies that use many industries, plants, or products with differing input requirements. We do this by examining, over a relatively long period, one plant that produced a standardized product with largely the same production work force and little change in assembly technology. We also examine institutional and historical events that occurred in the plant during the period of our analysis, as well as production-related factors like the learning curve. We focus on the leaders of both the local union and management and their interaction in creating the industrial relations climate that affected productivity in the plant. We empirically assess the effects of industrial relations factors on production using time series regres sions. We also present a counterfactual simulation to illustrate the effects of a total quality management (TQM) program, as well as other important labor-management events (Freeman and Kleiner 1998).