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

Martin Farnham; Emma Hutchinson

doi:10.1108/S0885-3339(2011)0000012006

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Advances in the Economic Analysis of Participatory & Labor-Managed Firms

ISSN: 0885-3339
Series editor(s): Professor Takao Kato

Subject Area: Economics

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

Document Information:
Title:	The Effect of Multiskilling on Labor Productivity, Product Quality, and Financial Performance
Author(s):	Martin Farnham, Emma Hutchinson
Volume:	12 Editor(s): Jed DeVaro ISBN: 978-0-85724-759-9 eISBN: 978-0-85724-760-5
Citation:	Martin Farnham, Emma Hutchinson (2011), The Effect of Multiskilling on Labor Productivity, Product Quality, and Financial Performance, in Jed DeVaro (ed.) Advances in the Economic Analysis of Participatory and Labor-Managed Firms (Advances in the Economic Analysis of Participatory & Labor-Managed Firms, Volume 12), Emerald Group Publishing Limited, pp.35-62
DOI:	10.1108/S0885-3339(2011)0000012006 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Article type:	Chapter Item
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.