Endogenous organizational change and the expected demand for different skill groups

Abstract

Between 1993 and 1995, the majority of German firms in services introduced new organizational practices (OC), in particular total quality management systems, certified ISO 9000, lean administration, flatter hierarchies, delegation of authority and ICT-enabled organizational changes. This paper analyzes the impact of organizational change on employment expectations. A system of probit equations will be estimated by simulated MLE. To account for endogeneity of organizational change in the labour demand equations a selection equation explaining organizational change is added to the system of equations. The empirical results suggest that organizational change has a positive impact on expected employment for all skill groups except for unskilled labour. Employment effects are robust to endogeneity of organizational change. New ICT and the share of training expenditures are primary forces behind OC.