The effect of labor on profitability
Subtitle: the role of quality
By: Zeynep Ton
Contributors: Harvard Business School
Edition: Rev.
Series: Working paper / Harvard Business School -- 09-040; Working paper (Harvard Business School) -- 09-040.
Publisher: Harvard Business School]
Published: 2008
Place of publication: [Boston
Language: eng
Number of pages: 32
Description: Determining staffing levels is an important decision in retail operations. While the costs of increasing labor are obvious and easy to measure, the benefits are often indirect and not immediately felt. One benefit of increased labor is improved quality. The objective of this paper is to examine the effect of labor on profitability through its impact on quality. Since employees at retail stores perform both production-related activities and customer-service activities, I examine both conformance quality and service quality. Using longitudinal data from stores of a large retailer, I find that increasing the amount of labor at a store is associated with an increase in profitability through its impact on conformance quality but not its impact on service quality. While increasing labor is associated with an increase in service quality, in this setting there is no significant relationship between service quality and profitability. My findings highlight the importance of attending to process discipline in certain service settings. They also show that too much corporate emphasis on payroll management may motivate managers to operate with insufficient labor levels, which, in turn, degrades profitability.
Notes: "September 2008, revised July 2009"--Publisher's web site.

Includes bibliographical references.