Large companies have recently highlighted the importance of employee well-being in their company profiles. For example, Lara Harding, people program manager at Google, remarks that: “At Google, we know that health, family and well-being are an important aspect of Googlers’ lives. We have also noticed that employees who are happy demonstrate increased motivation.”

iza-persname-8775Until recently scientific evidence for a link between employee well-being and company performance has been sparse. In the new IZA World of Labor report the economist Dr Eugenio Proto (pictured right), of the University of Warwick’s Department of Economics and Centre for Competitive Advantage in the Global Economy (CAGE), summarizes the latest research that shows a positive correlation between a rise in happiness and an increase in productivity. Finding causal relations between employee well-being and company performance is important for firms to justify spending corporate resources to provide a happier work environment for their employees. Proto believes “the available evidence suggests that companies can be encouraged to introduce policies to increase employee happiness.”

Proto cites a number of studies that uncovered evidence that happiness leads to greater creativity, and that job satisfaction is positively correlated with worker productivity. Other studies show that happy people – defined as people who frequently experience positive emotions like joy, satisfaction, contentment, enthusiasm, and interest – are more likely to succeed in their career. For example, adolescent Americans who are “happier” end up with higher incomes several years later in life.

industrial workerThese findings have several implications for company practice and for research. First, if happiness in a workplace carries with it a return in terms of enhanced productivity, there are enormous implications for firms’ promotion policies and for the way they structure their internal labor markets. For example, managers could be rewarded on the basis of employees’ job satisfaction.

Second, Proto suggests a win-win situation for everyone: “the effect running from happiness to productivity raises the possibility of self-reinforcing spirals—ones that might even operate at a macroeconomic level. Happiness might lead to greater productivity in an economy, and that might in turn result in greater well-being in the population.”