Using establishment-level count data, we investigate the relationship between employee trust of their managers and both: (i) product- market conditions; and (ii) the observability of manager’s actions within the firm. When demand is expanding (contracting), average employee trust of their...

It is not possible for a formal employment contract to detail everything an employee should do and when. Informal relationships, in particular trust, allow managers to arrange a business in a more productive way; high-trust firms are both more profitable and faster growing. For example, if they...