The Causal Effect of Job Satisfaction on Firm Profits

Abstract

The purpose of this study is to investigate whether employees' job satisfaction has affected labor productivity.Using a unique data set which comprises survey data on about 60000 Japanese union workers from 1990 to 2004, we find a positive and significant relationship between Job Satisfaction and per capita operating profits which is used as a proxy variable of labor productivity. Concretely, it was shown that if the company succeeded in raising average Job Satisfaction 0.1 point, per capita operating profit goes up by 1.48 million Japanese yen. In order to control potential simultaneity problems, we implement Two Stage Least Squares estimation and use marriage rate as an Instrumental Variable.