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December 18, 2017

Are happy workers more productive?

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Large companies like Google have recently made substantial investments in the well-being of their workers, an interest that has been mirrored in a rather large management literature (the so-called “affective revolution”). However, while empirical evidence shows that better-performing companies have happier employees, the question of whether happy employees contribute to better company performance is still being explored.

Finding a causal relationship between employee well-being and company performance is extremely problematic from a statistical point of view. While correlational and laboratory studies do find a positive relationship between subjective well-being and performance, the evidence remains sparse, and this relationship is likely to be quite complex. At the individual level, studies tend to find that workers performing tasks in isolation are more productive when in a good mood, perhaps because their mood positively affects their intrinsic motivation and focus on the task. These findings are corroborated by laboratory based evidence able to better identify the causality relationship running from subjective well-being to productivity.

Experimental economists have looked at the effects of incentivizing work tasks, in both the laboratory and in the real world. Two of the main experiments included positive impacts on happiness. In the laboratory experiment (a randomized controlled trial), members of the treatment group were shown a comedy video clip before they were given tasks to complete. Alternatively, the second experiment explored the effect of major unhappiness shocks—bereavement and family illness—in the real world. Subjects performed the same task as in the first experiment, after they completed the task they were asked whether they had experienced a bereavement or family illness in the last two years.

This relationship between well-being and productivity is less obvious when one considers performance within organizations, especially when jobs are undertaken jointly by several workers. On the one hand, traditional studies in psychology have pointed out how a good mood improves socialization, which should also enhance performance in groups. On the other hand, more recent studies have found that individuals in a good mood seem to be less efficient when working together. They posit that happiness can lead to more distractions due to incentives to socialize, or that individuals in a good mood might have a tendency to be more assertive and inward-oriented, which can be detrimental to their cooperation, especially when interactions are repeated.

The available evidence suggests that a positive mood or, more generally, high subjective well-being has a moderately positive effect on productivity (also considering that subjective well-being has positive effects on health and in lowering absenteeism as some studies suggest). The complexity of the concept of subjective well-being and the complexity of the relationship between subjective well-being and productivity suggest management should be cautious. It is clear that more research is needed to understand precisely when and in which circumstances policies to alter well-being are really beneficial to productivity in for-profit organizations.

© Eugenio Proto

Eugenio Proto's full article "Are happy workers more productive?" is available here.

Read more of our articles on the role of happiness in labor market policy

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We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.