Does Culture Pay? Compensating Differentials, Job Satisfaction, and Organizational Practices

Does Culture Pay? Compensating Differentials, Job Satisfaction, and Organizational Practices. By Christos Andreas Makridis. Stanford Working Paper, June 2017, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2990210

Abstract: Work-place practices are becoming an increasingly important mechanism for retaining and motivating employees. Using a new survey tool in partnership with PayScale.com between 2014 and 2016, I first document new facts about the dispersion of employee engagement and organizational practices in the labor market, and, secondly, recover a willingness to pay for these amenities. I show that the provision of these amenities creates a time-varying, firm-specific rent that amplifies traditional selection problems. My identification strategy exploits variation in employees’ outside option, which is uncorrelated with contemporaneous organizational factors, but still capitalizes work-place amenities. My estimates imply that employees are willing to pay 2% of their earnings for a standard deviation rise in organizational practices. Through a back-of-the-envelope calculation, I show that these amenities have a benefit-cost ratio of 1.4.

Keywords: Organizational practices, job satisfaction, turnover, compensating differentials, productivity.

JEL: L20, M51, M52, M54, M55