Market competition and the adoption of HRM practices

Abstract

This paper studies the effect of competition on the adoption of human resources management (HRM) practices that in theory display positive complementarities among each other. We use a panel sample of firms that is representative of almost every sector of the economy in Great Britain. First, a k--‐means partition cluster procedure is used to identify the combinations of HRM policies that are empirically most common. Second, the sudden and unexpected depreciation of the Sterling Pound in 2008, that affected sectors in different degrees depending to their exposure to foreign trade, is exploited as a quasi--‐natural experiment in order to identify the effect of reduced competition on the adoption of these HRM practices. Overall, results show that a reduction in competition caused an increase in the use of profit--‐contingent pay for workers not in a managerial position. On the contrary, less competition had a negative effect in the use of competency tests in recruiting, in the application of training programs on communication skills, and in the presence of employees that are trained to do other jobs than their own.