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Unformatted text preview: DISCUSSION PAPER SERIES IZA DP No. 570 Technological Change, Organizational Change, and Job Turnover Thomas K. Bauer Stefan Bender September 2002 Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor Technological Change, Organizational Change, and Job Turnover Thomas K. Bauer IZA Bonn and CEPR Stefan Bender IAB, Nrnberg Discussion Paper No. 570 September 2002 IZA P.O. Box 7240 D-53072 Bonn Germany Tel.: +49-228-3894-0 Fax: +49-228-3894-210 Email: [email protected] This Discussion Paper is issued within the framework of IZA's research area Mobility and Flexibility of Labor. Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschrnkter Haftung) supported by the Deutsche Post AG. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor, (2) internationalization of labor markets, (3) welfare state and labor market, (4) labor markets in transition countries, (5) the future of labor, (6) evaluation of labor market policies and projects and (7) general labor economics. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available on the IZA website (www.iza.org) or directly from the author. IZA Discussion Paper No. 570 September 2002 ABSTRACT Technological Change, Organizational Change, and Job Turnover* This paper uses a German employer-employee matched panel data set to investigate the effect of organizational and technological changes on gross job and worker flows. The empirical results indicate that organizational change is skill-biased because it reduces predominantly net employment growth rates of unskilled and medium-skilled workers via higher job destruction and separation rates, whereas the employment patterns of skilled workers are not affected significantly. New information technologies do not have significant effects on gross job and worker flows as soon as establishment fixed-effects are controlled for. JEL Classification: Keywords: J63, L23, O33 linked-employer-employee data set, information technology, organizational change, job turnover, worker turnover Corresponding author: Thomas Bauer IZA P.O. Box 7240 53072 Bonn Germany Tel.: +49 228 3894 529 Fax: +49 228 3894 510 Email: [email protected] * Parts of this paper have been written while Stefan Bender was visiting the IZA. We would like to thank David Jaeger, Arnd Klling, Julia Lane, the participants of the New Zealand Conference on th Database Integration and Linked Employer-Employee Data, March 2002, Wellington, the 16 Annual Conference of the European Society for Population Economics (ESPE), June 2002, Bilbao and the 10th International Conference on Panel Data, July 2002, Berlin, as well as seminar participants at the Australian National University and the University of Heidelberg for helpful comments on earlier drafts of the paper. 1. Introduction In the past two decades, most advanced industrialized countries have witnessed an increase in the relative demand for skilled labor, as evidenced by rising earnings inequality in the US and the UK and an increase in the relative unemployment rates of unskilled labor in continental Europe.1 The economic literature focuses on two main phenomena to explain these developments: increased trade with developing countries and skill-biased technological change. More recent literature suggests that changes in the organizational structure of rms, which is characterized by an increasing use of so-called exible or innovative workplace systems or High Performance Work Organizations (HPWOs), might be another important determinant of the observed labor market developments.2 Even though the dissemination of HPWOs varies between countries, industries, and rms, the observed reorganization process appears to be of quantitative importance in almost all industrialized economies.3 Recent empirical studies by Bresnahan, Brynjolfsson and Hitt (1999) for the US, and Caroli and van Reenen (2001) for France and the UK suggest that HPWOs are complementary with skills and hence could add to the explanation of the relative increase in the demand for skilled labor. Based on a standard static labor demand framework, most empirical studies on the wage and employment e ects of technological and organizational change estimate wage or employment share equations for di erent skill groups. In these equations the estimated coe cient of indicators for technological and organizational change is used to test whether new technologies or exible workplace practices are complementary to skills. Many theoretical models, however, view technological and organizational Surveys of the literature are given, among others, by Gottschalk and Smeeding (1997), Katz and Author (1999), Machin and Manning (1999) and Snower (1999). 2 In the literature, there is no consensus on the de nition of HPWOs. Usually, measures such as team work and job rotation, decentralization of decision-making within rms, a reduction in the number of hierarchical levels, the replacement of vertical by horizontal communication channels, the introduction of employee problem-solving groups or quality circles, Total Quality Management (TQM) and a change from task specialization to task diversi cation are subsumed under the term HPWO. 3 Evidence for Europe is given by the European Foundation (1997, 1998). See also Osterman (1994, 2000) for the US, NUTEK (1996, 1999) for the Nordic countries and Gallie et al. (1998) for the UK. Surveys are given by Snower (1999) and OECD (1996, 1999). 1 1 change as a process of creative destruction which involves the reallocation of jobs and workers across and within rms (Aghion and Howitt 1992 Kremer and Maskin, 1996 Mortensen and Pissarides, 1998, 1999a Thesmar and Thoenig, 2000). These models suggest that it is important to analyze the e ects of technological and organizational change in a dynamic framework to obtain a more detailed picture of the adjustment processes associated with these changes. It has very di erent policy implications whether such changes result in an increased destruction of jobs for unskilled workers, a relative decrease in the rate of job creation for unskilled workers or whether jobs that employ the newest technology and exible workplace systems are only created for skilled workers leaving employment of unskilled workers una ected. An analysis of employment shares cannot uncover these di erent processes because it is not able to distinguish di erent patterns of job creation and job destruction. Using a standard dynamic labor demand speci cation by regressing net employment changes on indicators for technological and organizational change, however, might mask important heterogeneity and asymmetry patterns in employment creation and destruction. Mortensen and Pissarides (1998), for example, developed a model in which rms have several options to adjust their workforce when implementing new technologies or new organizational structures.4 In their model, rms have the possibility to update their technology or organization by paying a xed renovation cost. These renovation costs subsume the costs of buying new machines as well as internal adjustment costs, such as the costs to train workers to operate in a new technological and organizational environment. If these renovation costs are lower than the costs of creating a new job, rms will adjust internally, i.e. they will update their existing jobs by training their incumbent workers. If the adoption costs are high relative to the job creation costs, rms will destroy the old jobs and and hire new workers with the necessary skills to work with the new technology and/or the new organizational environment. The model of Mortensen and Pissarides (1998) has important implications for See also the discussion in Mortensen and Pissarides (1999b) and Aghion and Howitt (1999, chapter 4.) 4 2 the empirical investigation of employment adjustment patterns arising from technological and organizational change. First, focusing solely on net employment changes might not provide su cient insights into the adjustment patterns associated with technological and organizational change because these changes might have signi cant e ects on job and worker reallocation without necessarily a ecting net employment. Therefore, it seems to be important to investigate also gross job and worker ows. Second, if rms in an industry or economy rely predominantly on internal adjustment, industry-level studies of net employment changes might erroneously conclude that technological or organizational change is not skill-biased. Since there is no clear relationship between job and worker reallocation across rms on the one hand and technological and organizational change on the other, it is important to take into account ows occurring across di erent skill groups within rms. If rms rely predominantly on external adjustment, technological and organizational change should lead to higher job and worker turnover across rms. If, however, rms rely predominantly on internal adjustment, technological and organizational change should not a ect turnover rates across rms. Hence, if rms rely on internal adjustment, studies of gross job and worker ows at the industry level might come to misleading conclusions regarding the question of whether technological and organizational change is skill-biased. To avoid these problems, one has to rely on rm or establishment data. Using an employer-employee matched panel data set for Germany, this paper aims at analyzing the employment e ects resulting from the introduction of new information technologies and HPWOs. Several issues are addressed. First, we investigate whether technological and organizational changes are skill-biased and whether these changes involve di erent patterns of job creation and destruction for di erent skill groups. By looking only at di erent job ow measures, we might miss important employment adjustment patterns that occur during the process of technological and organizational change. It is possible, for example, that rms replace their incumbent workers without changing the overall employment level and skill-mix. We therefore also analyze worker turnover rates. We focus in particular on the question whether plants that introduced new technologies or HPWOs show higher worker replacement 3 rates than plants that did not change their technological or organizational structure. The paper further contributes to the empirical literature on the relationship between exible workplace systems and establishment outcomes.5 Several studies on this issue nd that HPWOs increase productivity (see for example, Ichniowski et al. 1997, Batt 1999, Appelbaum et al. 2000). Empirical research on the wage e ects of HPWOs suggests that these systems also increase wages, indicating that the relationship between HPWOs and pro tability is ambiguous (Appelbaum et al. 2000, Capelli and Neumark 2001, Bauer and Bender 2002). Focusing solely on wages, however, this literature does not take into account other important components of total labor costs that might also be a ected by HPWOs. It is possible, for example, that exible workplace systems reduce labor turnover. The resulting reduction in hiring and ring costs might compensate for the increasing wage costs and thereby lead to a reduction of total labor costs. This paper contributes to this literature by providing some evidence on the relationship between exible workplace practices and labor turnover. Finally, the paper complements recent work on the relationship between job ows and workers ows using employer-level data.6 This literature is concerned with the question whether rms increase (reduce) employment by increasing (decreasing) hires or by reducing (increasing) separations. Di erent from most other studies in this area, our data set allows us to study gross job and worker ows at the skill level rather than the plant or industry level (but see Abowd, Corbell and Kramarz, 1999). The paper is organized as follows. The next section de nes the di erent job and worker ow measures and describes our empirical approach. Section 3 provides a detailed description of the data set. A descriptive analysis of gross job and worker ows resulting from technological and organizational change is given in Section 4. Section 5 presents the e ects of organizational change on worker turnover in a mulA recent survey of the literature is given by Capelli and Newark (2001). See Burgess, Lane and Stevens (2000,2001), Davis, Haltiwanger and Schuh (1996) and Anderson and Meyer (1994) for the US, Hamermesh, Hassink and van Ours (1996) for the Netherlands, Abowd, Corbell and Kramarz (1999) for France, and Alb k and S rensen (1998) for Denmark. A survey is given by Davis and Haltiwanger (1999). 5 6 4 tivariate setting comparing cross-section results to xed e ects estimates. Section 6 summarizes our analysis. 2. Empirical Approach 2.1. Gross Job and Worker Flows: De nitions We closely follow the existing literature by de ning gross job and worker ows (Burgess, Lane and Stevens, 2000 Davis and Haltiwanger, 1999 and Hamermesh, Hassink and van Ours, 1996). Our de nition of a job, however, departs from the standard de nition in the literature. Usually, a job is de ned as a relationship between a worker and a rm or simply a match. Changes in the number of such matches are viewed as job ows. This de nition, however, would not allow us to capture job reallocation between di erent skill groups within an establishment in an appropriate way. Technological and organizational change might lead rms to recon gure the skill-mix of the workers in the rm keeping the total number of jobs constant, by replacing jobs of one skill-type with jobs of another skill type. Based on the standard de nition of jobs, these changes would be labeled as replacement or churning ows. To be able to study the reallocation of jobs and workers between di erent skill groups within a plant, we de ne a job as a set of skills that the employer recognizes as being attached to an employment position. Using this de nition, the change of a worker from one skill type to another within a rm through training, for example, is considered as a job ow. Note, by taking within-establishment ows of jobs and workers between di erent skill groups into account, the measures of job and worker ows reported below should be higher and the calculated churning ows lower than those we would have obtained by using the standard de nition of jobs. Job ows are de ned as the change in employment of skill group i in establishment e at time t ( E ), which equals the di erence in hirings (H ) and separations (S ), i.e. JF = E H ; S , where E = E ; E ;1 . In the empirical analysis we di erentiate between three skill-groups based on the occupation of an iet iet iet iet iet iet iet iet iet iet 5 individual as it has been speci ed by the employer. A more detailed description of these skill-groups is given in the next section. The level of job reallocation is the absolute value of the corresponding job ows, JR = jJF j job creation is a positive job ow, JC = JF if JF 0 and 0 otherwise job destruction is a negative job ow, JD = jJF j if JF < 0 and 0 otherwise. Worker ows, WF , equal the sum of total hires and total separations, which occurred between t ; 1 and t. Following Davis and Haltiwanger (1999), the corresponding rates (JFR , JRR , JDR , JCR , HR , SR , WFR ) are obtained by dividing the levels with the average of current and past employment, i.e. Z = (E + E ;1)=2. Denoting the plant-level average of current and past employment as Z = (E + E ;1 )=2 and de ning the employment shares of the di erent skill groups as ES = Z =Z , the plant-level job ow, creation, destruction and reallocation rates can be written as the sum of the skill-level rates weighted by the respective employment shares, i.e. iet iet iet iet iet iet iet iet iet iet iet iet iet iet iet iet iet iet iet et et et iet iet et JFR = et P i ES JFR iet iet (1) iet JCR JRR e t = = = P i J Fiet 0 ES iet JFR (2) (3) (4) JDR P i J Fiet < e t 0 ES iet iet jJFR j iet iet P i e t ES jJFR j: Based on these measures, we investigate whether technological and organizational changes results in employment changes at di erent margins, i.e. whether they are associated with di erent job creation or job destruction patterns. They enable us, for example, not only to investigate whether technological and organizational change is skill-biased, but also whether relative employment changes mainly occur through the destruction of jobs for low-skilled workers or mainly through the creation of jobs for high-skilled workers. A nal question we address in this paper is the issue of worker reallocation. Imagine a rm that introduces a new machine. In this case, it is possible that the rm res ve incumbent skilled workers that do not have the skills to work 6 with the new machine and hires ve new workers with appropriate skills without changing the employment of the other skill groups. Then, net employment change and hence measured establishment job ows would be zero for all skill groups, if one relies only on the concepts de ned above. Worker ows can be written as the sum of worker ows due to changes in the employment size of a particular skill group in the establishment and worker ows due to replacements of existing jobs, i.e. WF = JR + C , where C is often called excess worker ows or churning (Burgess, Lane and Stevens, 2000, 2001 Hamermesh, Hassink and van Ours, 1996). The churning rate, CR , which is obtained by dividing C by Z , gives an indication of the worker ows in excess of the job ows which are necessary to accomplish an establishment's desired growth or decline in the employment of a particular skill group. Churning ows describe the sum of hirings and separations which are due to the replacement of workers who quit and workers who have been red by the employer. Assuming that there are no vacancies, replacement hirings equal replacement separations in equilibrium. Based on this assumption, some authors use replacement rates, RR , which in equilibrium equal half of the churning rate (see, for example, Alb k and S rensen, 1998). iet iet iet iet iet iet iet iet 2.2. Econometric Speci cation To assess the e ects of technological and organizational change on job and worker ows, we specify the following model, which is estimated on the plant-level e separately for three skill categories i: Y = iet 0X et + 0Z + 0I + et et iet : (5) We further estimate equation (5) for all workers in an establishment. As dependent variables we consider the measures for gross job and worker ow rates described above, i.e. JFR , JDR , JCR , HR , SR , and CR . The vectors I and Z consists of variables describing the introduction of new information technologies and exible workplace practices at establishment e, respectively. These variables will be described in more detail in the next section. As iet iet iet iet iet iet et et 7 already discussed above, it is not entirely clear how organizational and technological changes a ect the di erent measures of gross job and worker turnov...
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