In new research, Mario Amore, Morten Bennedsen, Birthe Larsen, and Zeyu Zhao examine the symbiotic relationship between working environments and employee well-being, finding that when workers are safe and satisfied, companies profit.
Companies routinely claim that employees are their most important asset. Large firms advertise well-furnished workspaces replete with ping pong tables and kombucha and professionally cooked lunches. Some offer free therapy sessions and flexible hybrid working conditions. Do these investments in worker well-being matter? Do employees perceive these benefits and the curation of a positive work culture the same way as employers, or is it all window dressing? How do these investments impact productivity? These are the core questions we explore in “The Economics of Working Environments: Evidence from Linked Survey and Register Data.” Our evidence shows that investing in working environments drives measurable gains in employees’ health, motivation, and retention, making labor more productive and, ultimately, improving firm profitability.
Our study uses data from Denmark’s National Research Center for the Working Environment (NFA), which surveyed more than 50,000 employees in 18,000 firms. The survey captures a wide range of factors that shape work life, like psychological safety and social climate, which can include elements such as fairness and inclusion at work, feelings of cooperation and peer support, and levels of bullying and harassment. We also measure physical risks like noise, chemicals, and hazards to give us a comprehensive view of what makes a workplace good or bad.
An important strength of our approach is that we can compare employee assessments with an independent source. The Danish Working Environment Authority conducts surprise inspections to check for safety violations and the quality of workplace climate from a psychological viewpoint. When we link these inspections to survey responses, we see a clear pattern: firms rated highly by employees are significantly less likely to receive a severe remark for a poor workplace environment.. This consistency between two different perspectives, i.e. employees and a regulator, confirms that NFA’s survey data provide a robust measure of workplace quality.
What explains observable differences in working environments? One of the key findings of our study is that working environments vary primarily as a result of firm-level attributes (e.g., physical layout of workplaces, cleanliness, perceived harmony among employees, supportive leadership etc.), not external factors. Country-level factors explain very little, and even industry differences account for only a modest share. This means that individual firms have a lot of agency over the overall levels of happiness workers experience at work and explained nearly a quarter of overall variation in workplace quality. Some firms, regardless of industry or external pressures, are able to create better working environments than others (e.g. a manufacturer might reduce noise and pollution at worksites while a service company helps employees to collaborate better and have a healthier work-life balance). This finding carries an important implication for policy and practice: workplace quality is not predetermined by competitive conditions or standard regulatory frameworks. The relationship between a company’s level of competition and working environment is insignificant. Instead, it is likely to reflect firm-level factors such as leadership priorities and organizational atmosphere.
Our study uncovers some other patterns at a more descriptive level. Smaller firms tend to offer stronger psychosocial environments, likely because of factors like peer support and commitment to work, while service-sector firms generally outperform manufacturing firms (primarily because physical risks are lower). Companies with more educated workforces or higher R&D intensity also invest more in workplace quality. While these relationships are descriptive rather than causal, they suggest that firms oriented toward knowledge, work, innovation, or flexible practices are more likely to prioritize the everyday employee experience.
Employees’ health conditions have been the topic of extensive inquiry in personnel psychology and organizational behavior research. Adding to these debates, our findings indicate that the impact of good working environments on employees is substantial and measurable. When workplace survey data are matched to Danish administrative records, including hospitalizations, accident reports, and tenure data, clear patterns emerge. Employees in firms with better working environments experience fewer mental-health-related hospitalizations, fewer emergency room visits, and fewer workplace accidents. A one-unit increase in the overall working environment score is associated with a 0.0053 decrease in emergency hospitalizations, which represents a reduction of approximately 10.6% relative to the average emergency hospitalization rate. These employees also tend to stay with their employers significantly longer.
While improvements across all dimensions matter, the psychosocial climate emerges as particularly influential. Negative experiences, such as conflict, hostility, and persistent stress carry the heaviest consequence. The physical environment also plays an important role, especially exposure to noise and vibrations. But the quality of day-to-day relationships, communication, trust, and support are the most consequential for employee health and retention.
These employee-level outcomes translate into meaningful differences in labor productivity and overall firm performance. Firms with better working environments are significantly more productive, and this higher productivity feeds directly into stronger profitability. In this case, a one-unit increase in firms’ working environment is associated with a 0.11 percentage points increase in performance. The component of the working environment most strongly associated with firm profitability is, again, the psychosocial dimension. This finding underscores that the “social infrastructure” of work—often considered as soft or peripheral—is a key driver of organizational effectiveness. The data suggest that firms treating workplace culture as strategic infrastructure, rather than as a human resources checkbox, gain competitive advantage.
Our study refrains from claiming causality due to a number of alternative interpretations that are hard to test with our data. The most productive firms may attract healthier or more motivated employees to begin with. And better workplace attributes may be correlated with unobservable variables potentially driving firm performance. Disentangling whether good workplaces produce better outcomes or whether successful firms invest more in their environments requires specific empirical approaches (e.g., experimental interventions) which are beyond the scope of our study. That said, the consistency of results across multiple outcomes—health, safety, tenure, productivity, profitability—suggests potentially profound implications of workplaces on employee- and firm-level outcomes. Investments in workplace quality may both improve employees’ welfare and generate financial gains for shareholders.
Implications for practice
For practitioners, the overall message is straightforward but important. Firms that cultivate psychologically safe, socially supportive, and physically sound workplaces enjoy tangible competitive advantages. This finding also has implications for how we think about sustainability practices. If firm choices drive most of the variation in workplace quality, then both market incentives and policy interventions should focus on empowering and encouraging those choices—whether through transparency mechanisms, knowledge sharing, or targeting enforcement where it matters most. The Danish evidence suggests that investing in the quality of working environments is not a cost to be minimized but an asset to be developed—one that pays dividends across different stakeholders.
Author Disclosure: The authors declare that there are no relevant financial or non-financial interests to disclose regarding the content of this report. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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