How Better Benefits Affect the Bottom Line

Good unemployment benefits are critical for many out-of-work individuals who need to make ends meet while searching for a new job. But the safety net those benefits provide can cause a big hit to employees’ productivity at companies, according to new research from the University of Maryland’s Robert H. Smith School of Business. The research pinpoints a way for companies to mitigate the problem and actually increase productivity: Offer additional great benefits to entice employees to work hard.

“With unemployment benefits, employees might slack off a bit because they know that if they do need to find a new job, the benefits are there,” says researcher Emanuel Zur, assistant professor of accounting and information assurance. “But if you make your company really appealing for employees and give other benefits that they cannot necessarily get in any other company — unlike unemployment benefits — then you will make them be more productive. You will make them want to stay in your company.”

Zur conducted the research with Heedong Kim, a recent Ph.D. graduate of the Smith School now a professor at Baruch College, and Masako Darrough at Baruch College. They looked at changes in state unemployment benefits programs and how the benefits correlated with firms’ productivity. They also measured how firms’ other employee benefits affected productivity.   

Their finding: Offering better benefits makes employees happier, less likely to leave, and more productive in their current jobs, says Zur. Good work/life balance benefits — such as flexible work schedules, longer maternity leave and telecommuting policies — provided the biggest boost to employee productivity and a company’s bottom line.

Zur said companies should take note and offer better benefits than their competitors.

“You need to be above the market, because the moment everyone has the same thing, employees think they can always go out and look for another job,” he says. “You don’t want people to think that it’s easy to find a different job or a better job because then they have less incentive to work.”

Read more: The Impact of Corporate Welfare Policy on Firm-Level Productivity: Evidence from Unemployment Insurance is featured in the Journal of Business Ethics.