Employee trust and workplace performance

Abstract

We explore the relationship between employee trust of managers and workplace performance. We present a theoretical framework which serves to establish a link between employee trust and firm performance as well as to identify possible mechanisms through which the relationship may operate. We then analyse matched workplace and employee data in order to ascertain whether the average level of employee trust within the workplace influences workplace performance. We exploit the 2004 and 2011 Workplace Employment Relations Surveys (WERS) to analyse the role of average employee trust in influencing workplace performance in both pre- and post-recessionary periods. Our empirical findings support a positive relationship between three measures of workplace performance (financial performance, labour productivity and product or service quality) and average employee trust at both points in time. Moreover, this relationship holds when we jointly model average employee trust and firm performance in an instrumental variable framework in order to take into account the potential endogeneity of employee trust. We then exploit employee level data from the WERS to ascertain how individual level trust of the employee (rather than the average within the workplace) is influenced by measures taken by employers to deal with the recent recession. Our findings suggest that restricting paid overtime and access to training potentially erode employee trust. In addition, we find that job or work reorganisation experienced at either the employee or organisation level is associated with lower employee trust.