Sustainability has become the new normal for value creation in the long haul, and is on the top of every board’s agenda. We assess the relationship between the workforce and a firm’s output gap justified by systematic inefficiency. To do so we apply a stochastic frontier model to a large sample of U.S. listed firms, across industries, spanning 2005 to 2019, focusing on measures of companies’ management commitment and effectiveness in addressing their workforce job conditions and well-being. Our results reveal an economically sizable and statistically significant positive association between technical efficiency and workforce-wellbeing. Firm inefficiency is explained by firm specific factors and is a decreasing (increasing) function of size and external monitoring (leverage, blockholdings and foreign sales). It is mitigated by employee-oriented practices and external governance mechanisms, as well as market surveillance. The association between workforce and technical efficiency is non-linear and varies across industry sectors. Our results have policy implications and should interest managers and stakeholders in general.
JEL Classification: C73; G14, G23, G34