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Productivity Effects of Organizational Change: Microeconometric Evidence

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Author Info

  • Irene Bertschek

    ()
    (ZEW (Centre for European Economic Research) Research Group Information and Communication Technologies, P.O. Box 103443, 68034 Mannheim, Germany)

  • Ulrich Kaiser

    ()
    (Department of Business and Economics, University of Southern Denmark at Odense, Campusvej 55, 5230 Odense M, Denmark)

Abstract

This paper analyzes the relationship between investment in information and communication technologies (ICT), non-ICT investment, labor productivity, and workplace reorganization. Firms are assumed to reorganize workplaces if the productivity gains arising from workplace reorganization exceed the associated reorganization costs. Two different types of organizational change are considered: enhancement group work and flattening of hierarchies. Empirical evidence is provided for a sample of 411 firms from the German business-related services sector. We develop and estimate a model for labor productivity and firms' decision to reorganize workplaces that allows workplace reorganization to affect any parameter of the labor productivity equation. Our general and flexible methodology allows us to properly take account of strategic complementarities between the input factors and workplace reorganization. The estimation results show that changes in human resources practices do not significantly affect firms' output elasticities with respect to ICT, non-ICT capital, and labor, although most of the point estimates of the individual output elasticities and of the control variables for observable firm heterogeneity are larger if workplace reorganization is realized. We therefore apply the Kernel density-estimation technique and demonstrate that for firms with organizational change, the entire labor productivity distribution shifts significantly out to the right if workplace reorganization takes place, indicating that workplace reorganization induces an increase in labor productivity that is attributable to complementarities between the various input factors and workplace reorganization. By contrast, firms without organizational change would not have realized significant productivity gains if they had reorganized workplaces.

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File URL: http://dx.doi.org/10.1287/mnsc.1030.0195
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 50 (2004)
Issue (Month): 3 (March)
Pages: 394-404

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Handle: RePEc:inm:ormnsc:v:50:y:2004:i:3:p:394-404

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Keywords: workplace reorganization; ICT investment; labor productivity; endogenous switching regression model; Kernel density estimation;

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References

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  1. Bresnahan, Timothy F. & Trajtenberg, M., 1995. "General purpose technologies 'Engines of growth'?," Journal of Econometrics, Elsevier, vol. 65(1), pages 83-108, January.
  2. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall.
  3. S. Black & L. Lynch, 1997. "How to compete: the impact of workplace practices and information technology on productivity," LSE Research Online Documents on Economics 20298, London School of Economics and Political Science, LSE Library.
  4. Georg Licht & Dietmar Moch, 1999. "Innovationa and information technology in services," Canadian Journal of Economics, Canadian Economics Association, vol. 32(2), pages 363-383, April.
  5. Frank R. Lichtenberg, 1993. "The Output Contributions of Computer Equipment and Personnel: A Firm- Level Analysis," NBER Working Papers 4540, National Bureau of Economic Research, Inc.
  6. Black, Sandra E & Lynch, Lisa M, 1996. "Human-Capital Investments and Productivity," American Economic Review, American Economic Association, vol. 86(2), pages 263-67, May.
  7. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 1999. "Information Technology, Workplace Organization and the Demand for Skilled Labor: Firm-Level Evidence," NBER Working Papers 7136, National Bureau of Economic Research, Inc.
  8. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
  9. Erik Brynjolfsson & Lorin Hitt, 1996. "Paradox Lost? Firm-Level Evidence on the Returns to Information Systems Spending," Management Science, INFORMS, vol. 42(4), pages 541-558, April.
  10. Kaiser, Ulrich, 2001. "Differences in response patterns in a mixed mode: online/paper & pencil business survey," ZEW Discussion Papers 01-50, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Bertschek, Irene & Fryges, Helmut, 2002. "The Adoption of Business-to-Business E-Commerce: Empirical Evidence for German Companies," ZEW Discussion Papers 02-05, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  12. Nathalie Greenan & Jacques Mairesse, 1996. "Computers and Productivity in France: Some Evidence," NBER Working Papers 5836, National Bureau of Economic Research, Inc.
  13. Kaiser, Ulrich & Kreuter, Markus & Niggemann, Hiltrud, 2000. "The ZEW - Creditreform business survey in the business-related services sector : sampling frame, stratification, expansion and results," ZEW Discussion Papers 00-22, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  14. Brynjolfsson, Erik. & Hitt, Lorin M., 1994. "Information technology as a factor of production : the role of differences among firms," Working papers 3715-94. CCSTR ; #173., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  15. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-46, September.
  16. Timothy F. Bresnahan, 1997. "Computerization and Wage Dispersion: An Analytical Reinterpretation," Working Papers 97031, Stanford University, Department of Economics.
  17. Sanjeev Dewan & Chung-ki Min, 1997. "The Substitution of Information Technology for Other Factors of Production: A Firm Level Analysis," Management Science, INFORMS, vol. 43(12), pages 1660-1675, December.
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