Academic journal article Journal of Economics and Economic Education Research

The Impact of Multiple Work Arrangements on Labor Productivity

Academic journal article Journal of Economics and Economic Education Research

The Impact of Multiple Work Arrangements on Labor Productivity

Article excerpt

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). Kalleberg, Reskin and Hudson, 2000, define standard employment arrangements as "the exchange of a worker's labor for monetary compensation from an employer, with work done on a fixed schedule, usually full-time, at the employer's place of business, under the employer's control, and with the mutual expectation of continued employment." As this discernible trend towards the nonstandard work arrangements and MWA becomes more diffuse and diverse, it is important for both internal and external decision makers to understand more about the implications of the employers' labor utilization or production capacity strategy on labor productivity.

Among different performance measures, productivity measures have historically received little attention in the existing accounting research [see Banker, Datar and Kaplan (1989) and Callen, Morel and Fader (2005)]. However, productivity is one of the most important performance measures used by corporate managers in making investment decisions and decisions regarding the utilization of both tangible and intangible assets. Banker, Datar and Kaplan (1989) suggest that productivity improvement can come from intangibles such as efficient labor use; new capital investment; or process improvement efforts. Productivity improvement is generally regarded as a driver of a firm's long-term profitability and value and, therefore, productivity improvement is an important leading indicator of a firm's performance (Kaplan 1983). To date, however, there is little or no empirical research in accounting about the impact of MWA on labor productivity. …

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