There have been many mentions about employees wasting a lot of their time at work visiting Facebook, YouTube and other "distracting websites", thus making their productivity suffer. Some companies resort to blocking such websites, but then the employees feel that they are being punished. Are there any studies on whether access to such sites decreases productivity, and what is the effect of blocking such websites on the employees?
Here is a search of "cyberloafing" and "psychological engagement" on Google Scholar, which present findings on the effects of productivity, how attitudes in the workplace are effected, and other topics that you might find useful.
It's difficult to summarize the various findings without short changing their explanations, but what many find is that any form of break from regular work a few times during the day is often refreshing, the same way people would physically walk away from their desks to break.
Anecdotally, in the places I've worked, usage was monitored, but never brought up as an issue unless there were other indicators that someone wasn't actually getting done what they needed to get done. Otherwise, what we did on the internet (so long as it didn't bring in viruses, or involve illegal file sharing or other activities that might raise the liability of the organization) was considered fine.
what is the effect of blocking such websites on the employees?
One of the effects is that people spend time and effort trying to circumvent these restrictions - at least it appears that way given the number of times the question comes up on Super User.