Worker Satisfaction and Economic Performance: Microfoundations of Success and Failure

Abstract

Traditional economic theory, as espoused by neoclassical economists, supports a “free market” approach to public policy. According to this theory, markets work so well that there is no need for unions, minimum wages, antidiscrimination laws, or perhaps even antitrust restrictions. Morris Altman challenges this view by mounting an assault on neoclassical theory and proposing an alternative that should do much to restore the notion that government can be a constructive force in society.Worker Satisfaction and Economic Performance explains that businesses often operate inefficiently, even in a competitive market. That’s because achieving the highest level of well-being requires not only efficient allocation of resources but also maximum effort from executives and workers. Only such effort will result in what Altman (following Leibenstein, 1966) calls “x-efficiency.” It is rarely achieved by the market left to itself because corporate leaders seldom are willing to increase workers’ pay or allow them adequate autonomy, both of which are needed for workers to increase their effort. To do so, the executives themselves would not only have to work harder but also have to give up some of their power and prestige.