Frederick Guy

High‐involvement work practices and employee bargaining power

High involvement work practices (HIWPs) may empower employees to do their jobs better, and also empower them at the bargaining table. This paper considers whether non‐universal adoption of productivity‐enhancing work practices may, at least in part, be explained by this dual nature of empowerment. It examines the case of a customer service programme in the Northern California division of Safeway stores, its affect on the outcome of a strike against Safeway, and the subsequent pattern of adoption (and non‐adoption) of similar programmes among Safeways competitors. It concludes that the dual nature of empowerment can help explain the apparent paradox posed by empirical studies; that although HIWPs improve the performance of all sorts of organisations, most organisations do not adopt HIWPs.

Earnings distribution, corporate governance and CEO pay

We investigate the relationship between earnings differentials and the pay of CEOs of 190 British companies between 1970 and 1990. We find that (i) changes in the differential between the 90th and 50th weekly earnings percentiles for non‐manual adult male workers [90:50] explain changes in the level of real CEO salary and bonus in our sample of companies; (ii) changes in this differential also account for changes in the elasticity of CEO pay to firm size; (iii) a broader measure of earnings inequality does far worse than 90:50 at explaining changes in both the level and the firm size elasticity of CEO pay; (iv) fitting the model on data for 1970–1983 and predicting pay levels for the period starting with the widespread adoption of executive share option schemes in 1984, we find a structural break in the relationship between lower management pay differentials and the pay of the CEO. We conclude first that top executive pay prior to 1984 was a stable function of both firm size and earnings differentials lower on the administrative ladder, consistent with a hypothesis advanced by Herbert Simon in 1957; and second that the use of share options from 1984 onward represents not simply a change in the mode of top executive compensation, but a de‐linking of the pay of top executives and that of their subordinates.

CEO Pay, Shareholder Returns, and Accounting Profits

We assess the impact on CEO pay (including salary, cash bonus, and benefits in kind) of changes in both accounting and shareholder returns in 99 British companies in the years 1972-89. After correcting for heterogeneity biases inherent in the standard specifications of the problem, we find a strong positive relationship between CEO pay and within-company changes in shareholder returns, and no statistically significant relationship between CEO pay and within-company changes in accounting returns. Differences between firms in long-term average profitability do appear to have a substantial effect on CEO pay, while differences between firms in shareholder returns add nothing to the within-firm pay dynamics.These findings call into question the rationale for explicitly share-based incentive schemes.

Small, Local and Cheap? Walkable and Car-oriented Retail in Competition

Abstract I develop a model of competition between walkable shops, and other shops whose customers drive (car-oriented shops). Walkable shops operate in monopolistic competition within a local area, or neighbourhood. A small cost advantage for car-oriented shops can turn into a larger price advantage. High prices in walkable shops effect a regressive transfer from poorer to richer consumers, since the poorer are less likely to have cars. Internalizing environmental and social costs of urban automobile use could reduce prices and increase capacity utilization in walkable shops in more densely populated local areas. Many common combinations of planning and pricing tools fail to internalize important costs, and may actually subsidize driving to shop, but a combination of planning and the pricing (through taxation) of retail parking could effectively internalize the relevant costs.

Strategic bundling: Information products, market power, and the future of globalization

ABSTRACT Strange argued that barriers to trade have fallen because increasing returns in product development and production: rising R&D costs, short product life cycles and low marginal costs of production raise the relative cost of producing for protected national markets. As an explanation for global (as opposed to regional) liberalization, Stranges argument requires that increasing returns be extreme. The class of products exhibiting the most extreme increasing returns is that of information products—goods such as general purpose computer software and digitized entertainment. Following Stranges reasoning, it might seem that the technological nature of information products is one of the drivers of global trade liberalization. The trouble with this argument is that while the technological properties of information products are necessary for extreme increasing returns, they are not sufficient. Increasing returns in information products are cemented by business models which leverage small portfolios of intellectual property into the control of markets. Information products are, however, equally well suited to other business models in which increasing returns are slight and competitors are many. To continue with the software and entertainment examples earlier, these include models based on free software, and on disintermediated markets for digitized entertainment. At present, the institutional structures within which information products are made and sold, are contested. The outcome of these contests could result either in the maintenance of monopoly power and increasing returns, or a shift to far more competitive and decentralized market structures. If the latter occurs, the increasing returns imperative for global trade liberalization would be weakened.

Power, Luck and Ideology – Technological and Institutional Parameters of the Agency Problem for CEOs

We propose an explanation for the growth of executive pay since the 1980s. New information and communication technologies (ICTs) appear to favor winner-take-all markets and to accentuate firm-level volatility of profits. We show, using an efficiency wage model, that these changes lead to higher executive pay. This is an example of what we have called, in other contexts, power-biased technological change (PBTC). The changes in market structure and the power of CEOs, however, are not only technologically but also institutionally contingent. JEL Classification: D31, J41, O33

Power, Productivity, and Profits

A change in workplace technologies may affect the relative earnings of workers in at least two distinct ways. One is through the market for skill, the other through workers’ power in relation to their employers. Increases in earnings inequality since the late 1970s in many industrial economies — and in particular, in liberal market economies like the US and UK — have been explained by many economists as a consequence of skill-biased technological change (SBTC). However, the evidence cited for SBTC can be read instead as evidence that new technologies affect the distribution of earnings not through supply and demand, but through changes in the relative power of different groups of employees. The reasons for these changes are detailed in Guy (2003) and the implications are analyzed more formally by Guy and Skott (2005) and Skott and Guy (2007).

Knowledge in the Air and Cooperation among Firms: Traditions of Secrecy and the Reluctant Emergence of Specialization in the Ceramic Manufacturing District of Lampang, Thailand

We study interfirm relations among ceramic tableware manufacturers in the city of Lampang, Thailand. Data consist of face-to-face interviews with the principals of thirty-four manufacturers, and with representatives of supporting institutions. We find that specialization in production and knowledge sharing are complementary; that knowledge sharing is substantially discretionary, rather than taking the form of passive spillovers; and that a weak knowledge base, built on firm-based training within vertically integrated mass producers, constrains the development of flexible specialization, despite the efforts of numerous local and external actors.

Technology, power and the political economy of inequality

Technology can affect the distribution of income directly via its influence on both the bargaining power of different parties and the marginal product of different factors of production. This paper focuses mainly on the first route. The role of power is transparent in the case of medieval choke points but modern network technologies have similar features. There is also substantial evidence -- from truckers and retail clerks to CEOs -- that power affects the determination of wages. But power relations inevitably have institutional dimensions; regulatory frameworks influence industry structures and the market power of large companies as well as the parameters that determine the earnings of different groups of workers. The institutional framework is arrived at through complex social and political processes; technology, however, may exert some influence on the course of those processes.

Labour Market Institutions, Skills, and the Resilience of Innovation During the Financial Crisis in Europe

This paper compares investments in innovation from the early days of the financial crisis up to mid 2009 using a survey covering more than 5,000 firms across twenty one European countries. Our interest is in how differences in labour market institutions and human capital affect a firm’s innovation investment during the recent financial crisis. We find that investment in innovation in Europe during the onset of the financial crisis in 2008-9, was strongest in countries which have both high earnings replacement rates and high participation in vocational education and training; countries with just one were more likely to see reduced innovation, while we find no effect - either positive or negative - from employment protection.