The Impact of Multiple Work Arrangements on Labor Productivity

Article excerpt

ABSTRACT

Measuring productivity is an important performance measure for decision making and resource allocation in managerial accounting. One factor which may affect labor productivity is the use of multiple work arrangements (MWA) such as fulltime employees, contract workers and independent contractors. Most of the prior research in accounting on MWA focused on the behavioral aspects of different work scenarios. There has been limited research in managerial accounting about the impact of MWA on the economics of labor productivity which is the focus of this study.

This paper examines the economic impact of MWA in long haul trucking companies. Specifically, we investigated the use of independent contractors (owner-operator drivers) versus fulltime company drivers and their impact on labor productivity. In a managerial context, owner-operators represent soft capacity and company drivers represent hard capacity. Our results indicate that owner-operators will improve the productivity of the company. There is a significant and positive association between the use of owner-operators and labor productivity. Prior studies did not find this positive relationship. Our results indicate that owner-operators can influence the variance of labor productivity either positively or negatively. However, there is more variability associated with the performance of owner-operators than there is with company drivers.

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INTRODUCTION

This study investigates the influence of multiple work arrangements (MWA) such as fulltime employees and independent contractors on the labor productivity in long-haul trucking companies. Specifically, we examine whether the levels of soft capacity in production affect the levels and the variances of labor productivity. Balakrishnan and Sivaramakrishnan (2002) define soft capacity as the resources having constraints that can be relaxed with a premium and hard capacity as the resources having constraints that cannot be relaxed in the short run. In this study, the independent contractors are considered as flexible resources (acquired as used and needed). Using the Motor Carrier Financial & Operating Information database, we compare the level and the variance of labor productivity across firms with different levels of soft capacity usage. The findings suggest that the level and the variance of labor productivity are significantly associated with the soft capacity ratio. Ittner and Larcker (1998b) suggest that there are many firm-specific, structural and environmental factors affecting the use and performance consequences of performance measures. These results provide empirical evidence that production capacity based on multiple work arrangements affects labor productivity as a performance measure. We show that the measure of multiple employment arrangements such as the soft capacity ratio associates negatively with the variance of labor productivity and positively with the level of labor productivity. The findings can help owners increase the congruence of the performance measures to management objectives and improve investors' understanding of the information content of labor productivity as a non-financial performance measure in the firm's valuation process.

In recent years, using multiple work arrangements (MWA) such as full-time employees, contract workers and independent contractors has become a prominent way of organizing production capacity for companies in different industries and professions (Lepak et al.. 2003; Matusik and Hill 1998; Davis-Blake and Uzzi 1993). For instance, according to the Current Population Survey (CPS) conducted by the Bureau of Census, 10.3 million people or 7.4 percent of the employed were working as independent contractors in February 2005. The proportion of nonstandard workers to the total employed in the U.S. is estimated to be as high as 26.3 percent in February 1995 (Houseman and Polivka 1999). …