The effectiveness of more advanced human resource systems in small firms

Abstract

In this paper, we analyze whether Human Resource (HR) systems in small firms can be associated with higher performance as well as higher wages. Our study, which focuses on Dutch pharmacies, shows that more advanced HR systems do not have any effect on firms' productivity. In these micro firms, it is only employees who significantly benefit from the introduction of both a basic and a more advanced HR system. Our findings that small firms do not significantly benefit from introducing less traditional HR practices offer an explanation for the thresholds in the diffusion of these HR practices in small firms, and suggest that in these firms formal HR practices are less important than personal relations between the employer and his or her employees.

Keywords:

• firm performance
• HRM
• human capital
• pharmacies
• small firms
• wages

Acknowledgements

We would like to thank Ben Kriechel, Wendy Smits and Danielle Van Jaarsveld for helpful comments on an earlier draft of this article.

Notes

1. Moreover, it should be noted that in the Netherlands non-registered medicines are almost always bought in commercial drugstores and hardly contribute to the sales of pharmacies.

2. More recently, a new job classification system was introduced, which distinguishes between standard jobs for pharmacists' assistants and three higher level specializations: pharmaceutical client care; coordination; and quality management.

3. This approach differs from the ‘additive index’ definition of HR systems (Wood 1999) as the latter approach allows different combinations of HR practices to be involved in more advanced HR systems. The additive index approach probably is more suitable in studies that cover different sectors of industry, whereas our approach makes it possible to take account of the actual use of more advanced HR practices in a particular sector of industry.

4. As mentioned above, pharmacists' assistants are supported by: lower level ‘pharmacy helpers’, who perform some basic tasks; some part-time cleaning personnel; and administrative staff. However, our analysis focuses on the pharmacist's assistants who are the core workers of the pharmacies.

5. Our estimation results do not substantially change when we exclude, from our analyses, pharmacies which cooperate with other pharmacies.

6. We estimate these two equations as a set of ‘seemingly unrelated regression equations’ (Zellner 1962). By using EGLS estimators, we are able to use the information on the explanatory variables that are only included in the second equation when estimating the first equation and allow for correlation between the two error terms.