Productivity Effects of Organizational Change: Microeconometric Evidence

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 of group-work and the flattening of hierarchies. Empirical evidence is provided for a sample of 411 firms from the German business-related services sector. A simultaneous econometric model for labor productivity and firms' decision to reorganize workplaces shows that changes in human resources practises do not significantly affect firms' output elasticities with respect to information and communication technologies, non-ICT-capital and labor. We also do not find significant differences in firms' returns to scale. The point estimates of the individual output elasticities and of the control variables for observable firm heterogeneity are, however, generally larger if workplace reorganization is realized. We therefore apply Kernel density estimation technique to demonstrate that the entire labor productivity distribution shifts out to the right if workplace reorganization takes place, indicating that workplace reorganization induces a significant increase in labor productivity. Significant differences in the productivity of ICT-capital and non-ICT-capital cannot be found.