Flexible institutional arrangements and labour productivity: the case of transit industry in the United States

• Published date: 01 January 2017
• DOI: http://doi.org/10.1111/irj.12169
• Date: 01 January 2017
• Author: Olga V. Smirnova

Flexible institutional arrangements and

labour productivity: the case of transit

industry in the United States

Olga V. Smirnova

ABSTRACT

Using the US National Transit Database 1994–2006, the manuscript empirically tests

the influence of several institutional arrangements on labour productivity. The main

finding of the paper is that not all flexible institutional arrangements may translate

into labour productivity gains in the mass transit. While partial contracting may in-

crease labour productivity in the US transit sector during the study period, the special

governance actually decreases labour productivity. The potential implications for im-

provements in labour productivity are discussed.

1 INTRODUCTION

Local governments, both within the United States (UCLG, 2009) and internationally

(CEMR, 2009), have experienced the negative effects of the Great Recession. Fiscal

pressures result from reduced payments and fees as well as reduced state support

(UCLG, 2009). In the face of limited funding and fiscal distress, increased attention

is paid to local governments’performance including whether they are flexible in gen-

erating solutions to the current challenges. With this regard, it becomes important to

evaluate how this flexibility allowed agencies to perform in the past.

We use the institutional analysis approach to investigate how managerial flexibility

may affect labour productivity in the transit industry over a period of time that in-

cludes a previous recession (March 2001 to November 2001

1

).

Flexible institutional arrangements are defined as rules that enhance the ability of

an organisation to adapt to changing economic times (Zafra-Gómeza et al., 2009)

and to ‘respond to divergent circumstances in different locations’(Tang, 1991; 48).

Local government managers might strive for flexibility (e.g. regulations fostering flex-

ibility) to boost performance, especially during times of adversity. Folke et al. (2005)

apply flexible institutional arrangements to the social-ecological systems and tie these

institutions to enabling legislation that promote conditions for adaptations.

The article examines three major institutions that influence managerial flexibility

with regard to labour: collective bargaining, contracting out and forming special au-

thorities. The question guiding this study is: How the presence of institutional choices

that influence managerial flexibility affects labour productivity?

❒Olga V. Smirnova, Department of Political Science, East Carolina University, Greenville, NC USA.

Correspondence should be addressed to Olga V. Smirnova, PhD, Associate Professor, MPA, Department

of Political Science, East Carolina University, Greenville, NC, USA; email: smirnovao@ecu.edu

1

US Business Cycles Expansions and Contractions, NBER, available online at http://www.nber.org/cy-

cles.html

Industrial Relations Journal 48:1, 72–93

ISSN 0019-8692

© 2017 Brian Towers (BRITOW) and John Wiley & Sons Ltd

Compared with previous studies on contracting (Brown and Potoski, 2005) and un-

ionisation (Nicholson-Crotty et al., 2012), this article offers a unique breadth of re-

sults applicable to the whole country instead of a single state or subsample of

places. Ideology arguments are omitted in this article; that is, the political preferences

for certain institutional provisions are not included in the analysis. Previous research

has found that local governments are often concerned with practical issues of services

quality and efficiency over ideology

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(Warner and Hebdon, 2001).

One of our major contributions is the finding that flexible institutional arrangements

may not translate into labour productivity gains. The local government management

might strive for flexibility during fiscal crises, but over the long term, those rules do

not guarantee higher productivity. Only partial contracting may lead to higher labour

productivity, while full contracting is found to have no effect (a finding common for

the contracting literature (Brown and Potoski, 2005; Warner and Hebdon, 2001)).

The unionisation rates and interaction of unionisation and contracting out had no

effect on labour productivity over the study period, which is a surprising finding given

unions effects on job satisfaction and working hours (Bryson and White, 2016). The

special governance (to a certain extent a unique American local government forma-

tion) has a negative effect on labour productivity. It may be that the rules that stress

job security and accountability lead to higher labour productivity. Further research

on specific job security rules and performance over time is needed in this area. The ar-

ticle covers the earlier time period mostly because of the lack of data both in the United

States and internationally (Bryson and White, 2016; Cappelli and Keller, 2013;

Pedulla, 2013). However, together with the earlier researchers, we believe that these

data and our study help to establish an important baseline for the future research. Be-

cause this study focuses on the single country, and a specific sector (transit), the trans-

lational effects and international competition are being controlled for by study design.

The following section provides US Mass Transit background, followed by the

definitions of flexible institutional arrangements and literature review. The research

design section outlines methods, measures and data used. Then, we discuss the results

and estimated models. The conclusions provide major implications and further paths

for research.

2 US MASS TRANSIT BACKGROUND

According to Troger (2016), public transportation has been expanding globally over

the past two years. This trend of increasing interest in the public transportation affects

the US mass transit sector as well. The American Public Transit Association also no-

tices the revival of the public transit ridership growth (APTA, 2008, 2014); in 2013

APTA (2014), there has been documented a record growth of ridership with 10.7 bil-

lion passenger trips. The public transportation ridership has outpaced the population

growth.

However, this revival is different from the public transit growth in the European

cities. American cities have adopted automobiles earlier and at a larger scale than

their European counterparts (Buehler, 2014). Prior to World War II, most of public

transit services in the United States have been provided by private and semi-private

2

At the same time, the ideology may play a very important role in setting up constitutional and collective

choice rules for flexible institutional arrangements (especially unions) (Schmitt and Mitukiewicz, 2012).

However, the discussion of the initial institutional set up is outside of the scope of this analysis.

73Flexible institutional arrangements and labour productivity

© 2017 Brian Towers (BRITOW) and John Wiley & Sons Ltd