Two perspectives on multiskilling and product-market volatility

Abstract

We study the effect of product market volatility on a firm's choice between multiskilling and specialization. We construct a theoretical model that captures the tradeoff between multiskilling (which gives greater flexibility to reassign workers in production) and specialization (which provides workers with the expertise to respond to product market signals in their area of specialty). Using data from the 2004 WERS, a nationally-representative cross section of British establishments, we find that greater volatility is associated with greater specialization. This result holds both inside and outside of manufacturing, but consistent with our model, it holds only in multi-product establishments and not in single-product ones.

Strategic Shirking: A Theoretical Analysis of Multitasking and Specialization

“…We replicated that analysis but using a different dependent variable, Multitasking , defined as the percent of workers in the establishment's largest occupational group that actually do jobs other than their own at least once a week, with the same seven response categories as in the preceding footnote. The qualitative result from DeVaro and Farnham () still holds with this alternative dependent variable. For example, in column 2 of table 2, DeVaro and Farnham () find in an ordered probit model on an estimation sample of 1,407 establishments that the incremental effect of the (binary) product market volatility measure on the probability of “no multiskilling” is 0.075, which, from a base probability of 0.40, implies an increase of 19% in the probability of no multiskilling, whereas we found that the incremental effect of product market volatility on the probability of “no multitasking” was 0.102 ( z = 2.01), which, from a base probability of 0.36, implies an increase of 28% in the probability of no multitasking.…”

“…The preceding testable implication relates to a theoretical and empirical result from DeVaro and Farnham () concerning multiskilling . Using the 2004 British WERS, those authors find that multiskilling is less likely when product market volatility is high.…”

“…If the flexibility perspective is what is driving multiskilling (and therefore multitasking) decisions, then the likelihood of these practices should be decreasing in firm size. The results in DeVaro and Farnham () reveal no statistically significant conditional correlation between establishment size and the likelihood of multiskilling. In the present analysis, using the same data, we found the same result for multitasking.…”

“…The Carmichael and MacLeod theory seems unable to explain our result concerning product market volatility, and indeed it might yield the opposite prediction. Consider a setting (e.g., sales) in which “tasks” refer to different products the firm produces, as in DeVaro and Farnham (). Workers can either be specialized on one product or multiskilled on both.…”

“…Although these productivity advantages are well known, the literature often considers the main return to specialization to be lower training costs (e.g., Carmichael and MacLeod, ; Garg et al., ; Morita, ). Studies that incorporate productivity gains to specialization are Cosgel and Miceli (), Lindbeck and Snower (), Dessein and Santos (), Boucekkine and Crifo (), and DeVaro and Farnham ().…”