Labor Flexibility and Firm Performance

By Valverde, Mireia; Tregaskis, Olga et al. | International Advances in Economic Research, November 2000 | Go to article overview

Labor Flexibility and Firm Performance


Valverde, Mireia, Tregaskis, Olga, Brewster, Chris, International Advances in Economic Research


MIREIA VALVERDE [*]

OLGA TREGASKIS [**]

CHRIS BREWSTER [**]

The aim of this paper is to add to the labor flexibility debate by exploring the relationship between different forms of flexible working practices and the performance of the firm. Although there is a strong argument that labor flexibility can lead to greater financial success through the reduction in labor costs and the ability to use labor resources more efficiently, little empirical evidence has been provided to demonstrate the existence of such a relationship. This paper reviews the existing literature, puts forward a number of research propositions, and tests them by using data drawn from the Cranet-E International Survey of Strategic Human Resource Management. Only one form of numerical flexibility is found to have a positive relationship with firm performance. Proposals for further research are suggested. (JEL D21)

Introduction: The Concept of Flexibility

Against a background of increasing competition, diminishing operating profits, redundancies, business closures and mergers, and an ever higher degree of uncertainty, organizations need to have the ability to adapt to fluctuations in demand and to changes in their environment in order to be successful or even in order to survive. This pressing need to adapt has led organizations to be flexible in as many aspects as possible, including the search for flexibility in their production methods, their access to and availability of financial resources, the design and organization of work, and so on [Albizu, 1997, p. 11]. Specifically in the labor aspects, this ability to adapt is achieved through different forms of what is broadly defined as labor flexibility. These include practices of a very different nature and can generally be classified into numerical, functional, and financial flexibility, according to the so-called managerialist stream of theoretical work on flexibility typified by the work of Atkinson [1984, 1985a, 1985b, 1987].

The organizational use of such flexible working practices has been the subject of much debate, especially those forms of flexibility which represent changes in the nature of the employment relationship, moving away from the traditional full-time, permanent job. The debate has not remained in the academic environment but has crossed over to the national and European policy level [Commission of the European communities, 1993, 1997]. Some of the topics of study have been associated with the relationship between flexibility and levels of employment, individual and national skill levels, the discretion or choice debates, equality issues, and the like.

Although there is strong argument that labor flexibility can lead to greater financial success through a reduction in labor costs and the ability to use labor resources more efficiently, little empirical evidence has been provided to demonstrate the existence of such a relationship [Caudron, 1994], especially at the national and aggregate levels. At the company level, some studies in the U.S. have aimed to determine the costs of temporary employment and compare them to the costs of full-time, permanent employment [Nollen, 1996; Nollen and Axel, 1996], with mixed and inconclusive results [Delsen, 1995]. The areas of functional and financial flexibility have been considered only at the case-study level (for example, see Hutchinson and Brewster [1995]).

Objectives

The aim of this paper is to add to the labor flexibility debate by exploring the relationship between different forms of flexible working practices and the performance of the firm. To approach the topic at hand, this paper will first outline the main forms of labor flexibility. Second, the existing literature dealing with the relationship between different forms of flexibility and organizational performance will be reviewed, noting an important gap especially with regard to empirically based research to support some widely accepted contentions.

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