How Does Job Design A¤ect Productivity and Earnings? Implication of the Organization of Production

This paper shows how job design in‡uences investments and bargaining power during production and examines its implications for the distribution of earnings between management and workers. Without bargaining, the decision to assign each worker to narrowly or broadly de…ned jobs depends on which mode elicits more investments from workers. However, job design makes workers’ investments either substitutable or complementary and thus in‡uences the relative bargaining power of a manager. When multiple workers perform broadly de…ned tasks, they become substitutable and a manager will have stronger bargaining power. When each worker performs a narrowly de…ned task, workers’investments become strictly complementary: Each worker can hold up the whole production and thus a manager will have weaker bargaining power. Thus, a manager can choose the pro…t maximizing broad task assignment even if workers may invest less and earn less. These results suggest that, if the labor market is not su¢ ciently ‡exible, the di¤usion of broadly de…ned jobs in production can be a factor underlying the trend of widening earnings gap between management and workers. JEL Classi…cations: D23, L23, M12