Happier workers really do make more profit, report shows

More respect, please: If company bosses stop trying to wring every last ounce of profit out of workers while paying them a pittance, and start treating them well instead, they'll be surprised at how well their firm starts to perform, according to a new report.

More respect, please: If company bosses stop trying to wring every last ounce of profit out of workers while paying them a pittance, and start treating them well instead, they’ll be surprised at how well their firm starts to perform, according to a new report.

The nice folk at NIESR have produced a new report that supports something this blog has been saying for many years – that businesses make more profit if they take better care of their workforce.

The report is headed Happier workers, higher profits? and states: “We found those workplaces with rising employee job satisfaction also experienced improvements in workplace performance, while deteriorating employee job satisfaction is detrimental to workplace performance.

“Employee job satisfaction was found to be positively associated with workplace financial performance, labour productivity, the quality of output and service and an additive scale combining all three aspects of performance.

“Workplaces experiencing an improvement in non-pecuniary job satisfaction… also experience an improvement in performance.

“By contrast, there was no robust association between job-related affect (measured in terms of the amount of time feeling tense, depressed, worried, gloomy, uneasy and miserable) and workplace performance, nor pay satisfaction and workplace performance.”

The conclusion is that “these findings are consistent with the proposition that employers who are able to raise employees’ job satisfaction may see improvements in workplace profitability (financial performance), labour productivity and the quality of output or service [bolding mine, for reasons that will become apparent].

“Although we cannot state definitively that the link between increasing job satisfaction and improved workplace performance is causal, the findings are robust to tests for reverse causation and persist within workplaces over time, so that we can discount the possibility that the results are driven by fixed unobservable differences between workplaces.

“There is therefore a prima facie case for employers to consider investing in the wellbeing of their employees on the basis of the likely performance benefits.”

This ties in very closely with Vox Political‘s many comments on the Living Wage. The relationship is obvious: Pay somebody enough that they don’t need to ask for State benefits and their sense of self-worth increases hugely.

Here’s what this blog said on the subject back in April last year: “If a person receives enough, in return for their work, to pay their way in the world without having to take state benefits, several things happen.

“They feel valued in their position, and try harder. The quality of their work improves, along with that of the other workers in the company who also receive the living wage, and as a result, the employer is likely to benefit from improved orders. The company flourishes [increased productivity] and is able to take on more employees.

“As a result of this, the firm and its employees are able to pay more taxes and National Insurance contributions – not as a result of an increase imposed by an oppressive government, but because more people are employed there [and profits are higher]. The government therefore has more cash to fund public services; it has less need to borrow money and will not have to pay as much in social security benefits – in-work benefits will be unnecessary because working people will be receiving enough to put them above the threshold for that support, and fewer people will be claiming out-of-work benefits.

“The government can then pay off its debts and deficit more quickly, after which it can cut tax rates. This means everyone will have more money in their pockets – including employers, who can plough the extra cash back into the firm with infrastructure improvements and more employment.

“You see how this works?

“Contrast this with what happens when you employ somebody on the minimum wage, or abolish it.

“People on the absolute minimum do not feel valued. They consider their employers to be taking more than their fair share of the profits generated by the company where they all work together. They feel undervalued – and demeaned by the fact that they have to claim state benefits in order to survive. Their health may be put at risk, because they may find themselves having to work ridiculously long hours, just to make ends meet. Their work starts to suffer, and they may end up unemployed, either for health reasons or because the company is suffering (as a result of workers turning in substandard work).

“The company makes cutbacks. Its bosses don’t want to take a pay cut so they cut corners elsewhere. The workforce diminishes and the quality of the product suffers. In time, the firm’s contribution to the national economy dwindles – if it doesn’t go to the wall altogether. Its tax and National Insurance contribution plummets.

“The government finds itself paying in-work benefits for increasing numbers of people, and unemployment figures skyrocket. Employers and workers do not provide enough money in taxes and National Insurance to pay the bill for public services, so these are cut back and borrowing increases. The nation goes into a debt spiral.

“That is the current situation.

“Which of the above would you rather have?”

That remains the current situation, no matter what George Osborne may be saying today. The government would not be considering slashing the amount paid to ESA claimants if it didn’t consider the number of people claiming the benefit to be too high. We all know the number of people claiming in-work benefits has rocketed and that Osborne is facing a huge shortfall between the amount of tax he expected to receive this year and the actual amount. What is it – £5 billion? That’s not small change!

There have been huge arguments with right-wingers who have made spurious claims that employers can’t afford to pay more than the minimum wage – or that there is no incentive to do so.

This research provides an incentive to do so.

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11 thoughts on “Happier workers really do make more profit, report shows

  1. Jim Round

    But then things like The Ritzy Cinema in London happen, a negotiated pay rise followed by staff getting made redundant.
    Or to put it another way, would people be pleased about paying extra for their food in a cafe if it meant the staff were paid a living wage?

    1. Mike Sivier Post author

      But why should they have to? Why can’t bosses just pay an appropriate amount and then use whatever profits are left to invest in the business (in the case of PLCs, after paying shareholders as well)? In other words, why can’t they follow good business practice?

      1. Jim Round

        Because as I have pointed out previously, not all businesses are PLC’s and big corporations, most are small businesses trying to keep afloat.
        I have asked before, what is a suitable tax and insurance take from a small business?
        Don’t forget they will be paying employee NI, insurance, business rates possibly VAT etc..
        Nobody came forward with any answers.

      2. Mike Sivier Post author

        That’s not an answer to my question, which was why bosses – of any business – can’t pay appropriately.
        It occurs to me that any small business that can’t pay a living wage to an employee simply shouldn’t be employing other people.
        If it is government regulation that is getting in the way, then that is a matter to raise with MPs – it’s why they were elected.

      3. Jim Round

        The answer is more money for themselves personally now.
        An example is the mobile phone industry, why do you think they outsourced abroad, it wasn’t to give jobs to people in those countries, it was for pure profit, but as a mobile is seen as an essential piece of kit for most people, they know they have them over a barrel, are there any mobile companies that have UK customer service?
        I’ll try to find out if James Dyson has ever been asked why he doesn’t manufacture his hovers in GB, but I think we already know the answer to that.
        With regards to your last points, this will simply mean a lot of small businesses folding.
        And trying to bring up anything of substance with most MP’s is mostly a waste of time.

      4. Mike Sivier Post author

        But that clearly isn’t the answer as they would make more money if they treated their employees right!

Comments are closed.