On the Role of Legislation as a Driver of Incentive Management Practices in Europe

This paper investigates one aspect of the structured management practices literature which has argued that exogenous legislative changes leading to reductions in union power (identified with the passage of RTW laws) serve to increase the use of management incentives practices often resisted by unions as giving too much discretion to the employer. Capturing such alterations in the business environment by compound legal changes in employee representation protection we investigate whether corresponding changes in the use of incentive management practices are found in European nations. Our baseline difference-in-differences model shows that reductions in the protection offered employees are associated with increased adoption of "people management," while increases in employee representation protection point to more strongly significant negative treatment effect estimates. Each finding is corroborated in a complementary analysis using synthetic control methods. Future discussion of management practices might be expected to take explicit account of the value of employee voice.