The Effect of Multiskilling on Labor Productivity, Product Quality, and Financial Performance

Abstract

A substantial literature examines the effect of high-performance workplace practices on various outcomes for firms and workers. However, little attention has been paid to the effect of broad job design on product quality or financial performance. And with rare exception, the empirical literature on outcomes from high-performance work practices treats those practices as exogenously determined. This chapter seeks to address these two shortcomings in the existing literature. Using a nationally representative cross-section of British employers in 2004, we measure the effect of multiskilling on establishment-level labor productivity, product quality, and financial performance. We find that treating multiskilling as an endogenous choice of employers in empirical models of organizational performance has significant implications for the results. In particular, the estimated (positive) effect of multiskilling on labor productivity vanishes when we treat multiskilling as an endogenous choice of employers. Treating multiskilling as an endogenous choice changes its estimated effect on product quality from zero to positive and substantially increases the estimated magnitude of its (positive) effect on financial performance.

Citation

Farnham, M. and Hutchinson, E. (2011), "The Effect of Multiskilling on Labor Productivity, Product Quality, and Financial Performance", DeVaro, J. (Ed.) Advances in the Economic Analysis of Participatory and Labor-Managed Firms (Advances in the Economic Analysis of Participatory & Labor-Managed Firms, Vol. 12), Emerald Group Publishing Limited, Leeds, pp. 35-62. https://doi.org/10.1108/S0885-3339(2011)0000012006