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Reorganization of Firms and Labor Market Inequality
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
Department of Economics, Birkbeck College, University of London.
1996 (English)Report (Other academic)
Abstract [en]

Much of the history of economic enterprise has involved reaping the benefits from specialization of labor by dividing increasingly fragemented tasks among different employees - as vividly described already by Adam Smith in his Wealth of Nations. This development was greatly facilitated through the rise of "Tayloristic organizations," where standardized inputs are processed to yield standardized outputs, and where different functional tasks (e.g. administration, production, marketing, design) are performed in different departments, coordinated through a hierarchy of managers. These organizations - common in both the manufacturing and service sectors - testified to the importance of specialization of work, in production as well as organization.   This pervasive organizational structure is now in retreat. Charlie Chaplin at the conveyor belt, in the movie Modern Times, is no longer the prototype worker. With hindsight, the wave of change began well over a decade ago; it has accelerated in recent years, and may be expected to gather even more pace over the next decade. The organization of many firms in both the manufacturing and service sectors is being progressively restructured. This process calls into question the need for extreme specialization by skill-specific occupation, creates demands for new combinations of skills, and thereby leads to new patterns of wage inequality.   The restructuring process is characterized by a number of complementary features. First, the organizational structure of firms is becoming flatter: the new structure is built around teams that report to the central management, with few if any intermediaries. Second, production processes are being transformed: the application of computer technology, flexible tools, and programmable, multi-task equipment reduces returns to scale and permits greater production flexibility. Third, the flow of information within firms has been revolutionized: the introduction of computerized data systems permits more individualilzed treatment of employess and customers, facilitates the decentralization of decision making, and enables employees to perform multiple tasks and exploit complementarities among them. Fourth, firms offer broader product lines in smaller quantities, responding more readily to customers' requirements: customer participation in product design is growing and there is greater emphasis on product quality and ancillary services. And fifth, the nature of work is changing: occupational boundaries are breaking down as workers engage in multi-tasking and work rotation. These various aspects distinguish the traditional, Tayloristic organizations from what we shall call "holistic" organizations.   Recent technological advances and improvements in physical and human capital have undoubtedly played a central role in driving the process whereby Tayloristic organizations restructure into holistic ones. The increasing use of computers to transmit information within firms and the rising versatility and programmability of equipment have increased the complementarities across tasks (e.g. production, marketing, customer service, product design) that a given employee can exploit. Furthermore, the growing amounts of all-round knowledge that has been disseminated through the education systems over the past few decades has made young people increasingly capable of performing multiple tasks. This accumulation of human capital has also changed people's preferences away from the monotonous, single-purpose Tayloristic jobs to the frequently more varied and stimulating holistic ones.   In what follows, we examine the consequences of these developments for the reorganization of work, the move towards multi-tasking and the consequent break-down of occupational barriers, the transformation of job opportunities, and the implications for inequality in the labor market.

Place, publisher, year, edition, pages
Stockholm: IIES , 1996. , 13 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 605
National Category
URN: urn:nbn:se:su:diva-40894OAI: diva2:327169
Available from: 2010-06-29 Created: 2010-06-28 Last updated: 2010-07-02Bibliographically approved

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