Add Thesis

Does Work Organisation Impact Individuals’ Labour Market Position?

Written by E. Resare, E. Söderholm

Paper category

Master Thesis

Subject

Economics

Year

2015

Abstract

Thesis: Many existing theories about work organization emerge from a business perspective, or from a more humane aspect of organizational structure. In order to link these theories with general economics, one idea is that both companies and employees are trying to maximize their benefits. Therefore, the employment contract may be terminated due to two main issues; the worker no longer maximizes the utility of the company, or the company no longer maximizes the utility of the individual. These theories focus on how to maximize the company's utility to employees, so they are related to labor economics (Mondy and Mondy, 2014; Lazear and Oyer, 2012). 4 Labor economics theory points out that job security and wages have a trade-off relationship; the more unstable the job, the higher the salary must be. This is called compensatory wage differential (Björklund et al., 2006). Smith (1964) also emphasized that it is assumed that individuals with higher levels of human capital get higher salaries. This idea developed into the theory of human capital following the theory of Theodore Schultz and Gary Becker (Kwon, 2009). In other words, labor market theory does recognize that the work environment has an impact on employee preferences, even so, the research organization on work is dominated by business perspectives. Another example of testing work environment and personal work motivation is the motivation-hygiene theory, also known as the two-factor theory, proposed by Frederick Herzberg (Herzberg, Mausner, and Snyderman, 1993). The theory emphasizes that for individuals to be motivated to work, companies must at least provide so-called hygiene factors. For example, these factors involve wages, job security, working conditions, company policies, and company management. Only when these needs are met, can employees be motivated to develop and increase productivity. Achievement, responsibility, and promotion are seen as motivating factors, and they are usually more directly related to the task (Bruzelius and Skärvad, 2011). When the above two stages are completed, a good working environment is formed (Herzberg, Mausner and Snyderman, 1993). Other aspects of organizational structure can be found in three categories: flexibility, decentralization, and learning. Flexibility can be regarded as an umbrella category, because decentralization and learning are types of functional flexibility (Swedish National Council for Industry and Technology Development, 1996). Flexibility is often seen as beneficial in the work environment, especially for employees. 5 According to most researchers, flexibility can be divided into two subgroups, functional flexibility and digital flexibility. Numerical flexibility is the possibility for companies to adjust labor input. In macroeconomics, it is generally believed that numerical flexibility is beneficial to the economy (Jackman, Layard, and Nickell, 1999). Usually divided into hiring consultants or hiring part-time employees. Therefore, digital flexibility is divided into external and internal labor, because companies hire part-time workers internally, while consultants contract externally (Kalleberg, 2001). Internal numerical elasticity has a close theoretical connection with unemployment. If employees work less hours, the company can hire more people. Although there is an intuitive explanation for this idea, many studies have shown that this relationship is not clear and therefore difficult to predict. 9 For example, Erbaşand Sayers (2001) discusses how the reduction of working hours will have a negative first-order effect, because the marginal cost of hiring another person is greater than the marginal cost of making employees work overtime. Hiring another person can create productivity gains, which constitutes a second-order effect. This effect may overwhelm the first-order effect, thereby increasing employment. Tangian (2008) found that external flexibility affects employment stability in a negative way, but it is positively correlated with employability. In addition, internal numerical flexibility has almost no negative impact on employment stability, but has a positive impact on employability. According to a Swedish study (Aksberg, 2012), workplaces that use digital flexibility increase the likelihood of unemployment. In addition, the study had a negative impact on the likelihood of staying in the same company in the first four years. Another finding was that the use of numerical flexibility increased the likelihood of being hired by another company in the first three years of the study, and then reduced it. Aksberg (2012) concluded that the impact of flexible work organizations can lead to employee turnover, which constitutes a positive influence on the possibility of being hired by another company. Using the same survey as Aksberg (2012), NUTEK (1996) found a negative correlation between flexibility and employee turnover. 10 In addition, they found that flexibility reduces the number of sick days employees use by 24%. Functional flexibility includes many different factors surrounding the workplace. Kalleberg (2001, p. 479) defines it as "improving employees' ability to perform various tasks and participate in decision-making." This can include decentralization, organizational learning, job rotation, the possibility of flexible arrangements for employees, and the possibility for employees to determine their own working hours. Read Less