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Rigidities through flexibility: Flexible labour and the rise of management bureaucracies

Rigidities through flexibility: Flexible labour and the rise of management bureaucracies Alfred Kleinknecht Emeritus Professor & Visiting Fellow of WSI (Hans-Böckler-Stiftung) www.alfredkleinknecht.nl. Background:. Since the supply-side turn in economics in the end 1970s we observe:

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Rigidities through flexibility: Flexible labour and the rise of management bureaucracies

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  1. Rigidities through flexibility: Flexible labour and the rise of management bureaucracies Alfred Kleinknecht Emeritus Professor & Visiting Fellow of WSI (Hans-Böckler-Stiftung) www.alfredkleinknecht.nl

  2. Background: Since the supply-side turn in economics in the end 1970s we observe: An OECD-wide decline of labour's share in National Income An increasing group of working poor on precarious jobs … versus top income earners Campaigns for deregulation of labour markets & sobering of the welfare state And, as a consequence: A persistent decline of growth rates of labour productivity (firm-level and country-level evidence)

  3. Previous research shows that: The decline of labour productivity growth is related to two factors: Weak wage growth Increasingly flexible labour relations → erosion of 'social capital' (i.e. trust and loyalty of workers) Survey article: “How ‘structural reforms’ of labor markets harm innovation”, Research Paper No. 6 (July 2015), www.socialeurope.com

  4. Rationale? • Speed of capital – labour substitution • Vintage effects • Induced Innovation (Kennedy/van Weizsäcker) • Creative destruction (Schumpeter) Key finding from panel data estimates: A one-percent wage decline (increase) leads to 0.3 ̶ 0.5% lower (higher) growth of value added per labour hour Background reading: Vergeer & Kleinknecht 2011: The impact of labor market deregulation on productivity, Journal of Post-Keynesian Economics, Vol. 33(2): 369-404. Vergeer & Kleinknecht 2014: Does labor market deregulation reduce labor productivity growth? International Labour Review, Vol. 153(3): 365-393.

  5. In addition, larger labour turnover leads to weaker innovation performance due to: Lower trust and loyalty of workers: Larger externalities discourage investment in R&D and knowledge Larger management & control bureaucracies (this paper) Un-learning organizations (weaker historical memories) Firm-sponsored training becomes less profitable More power to the bosses: Favours autocratic management practices Top management makes poor use of expertise from the shop floor Culture of fear: risk avoidance is bad for innovation Weak functioning of the 'creative accumulation' innovation model (continuous accumulation of firm specific [often 'tacit'] knowledge)

  6. Hypothesis to be tested in this paper: Deregulation of labour markets (or adoption of 'Anglo-Saxon' HRM practices through flexible jobs) is destructive to trust and loyalty increasing need for monitoring & control  thicker management bureaucracies A first indication at macro-level: Shares of managers in the working population are much larger in 'flexible' Anglo-Saxon countries compared to 'Old Europe' (next sheet)

  7. Norway Spain Greece Sweden Italy Switzerland Belgium Ireland Germany Portugal Japan Denmark Finland Austria Netherlands U.K. Australia USA Canada 0 5 10 15 Managers as a percentage of the non-agrarian working population Share of managers in the working population (19 OECD countries, 1984-1997) According to De Beer (2001), the Dutch figure increased from 2% to 6% during 1978-98 (in parallel with a strong growth of flexible labour)

  8. This paper takes a look at firm-level data … Database: SCP National Labour Demand Survey 2009-2010 in The Netherlands Coverage: About 3.000 organizations that employ personnel (5 or more) in manufacturing, services, government, not-for-profit etc. Survey focuses on labour market indicators (e.g. flexible workers) Question of key relevance to this paper: What share of your employees occupy managerial positions?

  9. Annual shares of managers in the Dutch working population, 1991-2010 Source: Own calculations based on the SCP labour demand panel, data available through www.dans.knaw.nl

  10. Flexible workers as a percentage of the working population, 1991-2010 Source: Own calculations based on the SCP labour demand panel, data available through www.dans.knaw.nl

  11. Regressions explaining % share of managers in total personnel:

  12. Conclusion: Your start with more flexibility … Structural reforms that intend to make labour markets more 'flexible' result in: Easier hire & fire and larger rates of job turnover … … which destroys social capital (trust & loyalty) … … and once social capital is destroyed you need tougher monitoring & control … … and this creates new rigidities: thicker management bureaucracies → more inertia in decision making … … which is bad for creativity & innovation and frustrating for creative people! … and you end up with new rigidities

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