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.