Productivity Effects of Organizational Change: Microeconometric Evidence

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: introduction of 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 reHelpful suggestions from Bronwyn Hall, Dietmar Harhoff, Thomas Hempell, Joachim Henkel, François Laisney, Georg Licht, Jacques Mairesse, Huub Meijers, Jörg Ohnemus, Amil Petrin, and an anonymous referee are gratefully acknowledged. We also wish to thank the participants of the 25th annual meeting of the German Classification Society, Munich, the ZEW–conference ‘The Economics of Information and Communication Technologies’, Mannheim, and the brown bag seminars at the University of Mannheim and at MERIT, Maastricht, for valuable comments. Ulrich Kaiser is indebted to the German Science Foundation (Deutsche Forschungsgemeinschaft, DFG) for partially funding this research within the ‘Industrial Economics and Input Markets’ program under grants PF331/1–1,1–2,1–3 and PO 375/3–1,3–2,3–3. ZEW Mannheim, Research Group Information and Communication Technologies, P.O. Box 103443, 68034 Mannheim, Germany, email: [email protected], internet: http://www.zew.de/en/mitarbeiter/mitarbeiter.php3?action=mita&kurz=ibe. Corresponding author: University of Southern Denmark at Odense, Dept. of Economics, Campusvej 55, 5230 Odense M, Denmark; email: [email protected], internet: www.sam.sdu.dk/staff/uka, Centre for Economic and Business Research, Copenhagen, and Centre for European Economic Research, Mannheim . organize workplaces that allows workplace reorganization to affect any parameter of the labor productivity equation. Our general and flexible methodology allows 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 information and communication technologies (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 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. JEL classification: C25, D24