Skill development, bargaining power, and a theory of job design

• DOI: http://doi.org/10.1111/jems.12250
• Published date: 01 June 2018
• Author: Seongwuk Moon
• Date: 01 June 2018

Received: 16 March 2015 Revised: 3 November2017 Accepted: 24 November 2017

DOI: 10.1111/jems.12250

ORIGINAL ARTICLE

Skill development, bargaining power, and a theory of job design

Seongwuk Moon

The Graduate School of Manage-

ment of Technology,Sogang Uni-

versity,BW 624, 35 Baekbeom-ro,

Mapo-gu, Seoul 04107, Korea (Email:

seongwuk@sogang.ac.kr)

Abstract

We examine the job design decision in the context of skill development and bargain-

ing power. The choicebetween specialization and multitasking requires employees to

develop either specialized or varied task-specific skills. Employees' (i.e., the owners

of the acquired skills) bargaining powerdepends on t heir skill sets,which differentiate

their ability to hold up production and threaten to leave a firm. When a firm cannot

meaningfully elicit skill investmentsthrough job design, it will pursue inefficient mul-

titasking to reduce production holdups or inefficient specialization to prevent skilled

employees from leaving. We obtain inefficient job design results only for mediocre

ability workers.

1INTRODUCTION

We exa min e job design in the context of workers' on-the-job skill development. Job tasks and skills are distinct. According to

Autor (2013), a task is “a unit of work activity that produces output,” whereas a skill is “a worker's stock of capabilities for

performing various tasks.” To produce output, “workers apply their skills to tasks” (Autor, 2013). Job design influences the

development of task-specific skills, which are built up based on the tasks assigned to workers. Although a firm controls how

workers are assigned tasks, workers own the skills they acquire through implementing tasks. The acquired task-specific skills

thus affect the size of the joint surplus and the bargaining power of workers relative to that of the firm. Therefore, the efficiency

of job design ultimately depends on how a firm (the owner of task assignment) addresses the change in the bargaining power of

workers (the owners of task-specific skills).

Consider an online game company whose two main tasks are developmentand design. Its development tasks include encoding

the storyline and graphics components of the game by using a programming language, whereas its design tasks include deter-

mining the game's graphics layout and style. Both tasks are strictly complementary because a game cannot reach the market

unless both tasks have been completed. Depending on which task a new employeeperforms, he or she will have developed a dis-

tinct skill after its completion. In this setting, development tasks require a new employee to encode the visual configuration and

operation of the game by using a programming language, which allows him or her to acquire the relevant programming skills.

In the same vein, in configuring the graphics component of the software using visual arts (i.e., a design task), the employee will

acquire graphics skills.

Simultaneously performing development and design tasks is very difficult for a new employeebecause the respective relevant

skills rarely overlap. Cascading StyleSheets (CSS)—a software that enables HTML elements to be presented in different layouts

and styles—addresses such a difficulty by helping programmers improve the layout and style of a game's graphics without the

input of a designer. In addition, CSS also benefits designers by allowing them to confirm how the layout and style appear on

the screen with simple commands, thereby making designers much less reliant on developers' work. Thus, using CSS enables

designers to perform developers' work and vice versa. However, the degree of substitutability depends both on the ease of

I am grateful to Daniel Spulber, the coeditor, and the two anonymous reviewersat Jour nal of Economics & ManagementStrategy for their valuable guidance

and comments. I would also like to thank David Besanko, Catherine de Fontenay,Joshua Gans, Benjamin Jones, Jinyoung Kim, Tapas Kundu, and Scott Stern

for their helpful comments and suggestions on previous versions of this paper.

270 © 2018 Wiley Periodicals, Inc. J Econ Manage Strat. 2018;27:270–296.wileyonlinelibrary.com/journal/jems

MOON 271

learning and using CSS and on the amount of effort that designers (developers) would like to invest to understand development

(design) tasks.1

How does the owner of this company need to design jobs for two new employees? Should the owner assign a development

task to employee 1 and a design task to employee 2 (i.e., pursue specialization) or assign development and design tasks to both

employees (i.e., adopt multitasking)? What is the implication of introducing CSS for job design? The owner must address the

different trade-offs that the choice of job design generates.

Without CSS, a developer would find it challenging to develop the graphics skills necessary to perform design tasks. In

this case, specialization can encourage a developer to acquire greater programming skills by removing the burden of acquiring

design skills. However,the owner is likely to face a developer who demands a wage increase that is greater than his or her actual

contribution. Given that a game cannot reach the market without the developer performing the development task properly, the

developer will leverage the possibility of internal holdup for a wage increase. When CSS is introduced, a designer becomes

capable of developing programming skills. Now the owner can ask the designer to acquire sufficient additional programming

skills to perform the development task. This implies that under multitasking a designer can act as a developer if necessary. A

developer then has less bargaining power in a wage increase, and the owner will leverage the possibility of internal substitution

for a profit increase. However, the improved outside opportunity of the designer constrains the profitability of multitasking. A

designer with programming skills becomes more attractive to other firms than one without programming skills because both

programming and graphics skills are valuable. Thus, a designer can leverage the threat of leaving a firm fora wage increase more

effectively under multitasking than under specialization; therefore, a designer is willing to invest in both skills aggressively for

bargaining purposes. However, the profitability of the owner will decline, and thus the owner may consider specialization to be

more profitable. Specialization can reduce the mobility of a designer if the market significantly undervalues a designer without

programming skills.

As the example of an online game company illustrates, job design exploits both workers' ability to develop distinct skills for

productivity purposes and the possibility of internal substitution for bargaining purposes. Job design also changes the outside

opportunity that influences both the incentives to skill development and bargaining power. By regulating these forces differ-

ently, the choice between specialization and multitasking influences the size of the developed skill set and its contribution

to total surplus and profit. First, workers' ability to develop distinct skills is crucial to eliciting skill investments. Specializa-

tion is more effective if it is costly for workers to perform distinct tasks simultaneously; multitasking is more effective for

workers who are flexible in their ability to perform multiple tasks. Second, the possibility of internal substitution between

workers influences how developed skills contribute to a firm's profit. Specialization means that workers' skills are strictly com-

plementary. Such strict complementarity reduces a firm's bargaining power because a single worker can withhold production

by exploiting the strict dependence of production on each skill. Multitasking increases a firm's bargaining power by render-

ing workers' skills substitutable because whenever one worker tries to hold up production, the firm can proceed with another.

Third, the outside opportunity influences both incentives to skill development and bargaining power. Multitasking provides

stronger incentives to workers because the market favors multiskilled workers over specialized workers. However, multiskilled

workers can leverage the threat of leaving a firm as a source of bargaining power. Thus, increased skills can reduce the prof-

itability of a firm significantly. In this case, fewer specialized skills can contribute more to a firm's profit than more extensive,

multiple skills. This situation occurs when specialization substantially weakens workers' bargaining power by restricting their

mobility.

The trade-off between productivity, internal holdup, and threat from outside opportunities in job design choice implies the

following results: first, workers with an extremely high (low) ability to develop multiple skills will work under multitasking

(specialization). For these workers, skill investments significantly contribute to both total surplus and the firm's profit so that

the profit gain from bargaining is inconsequential. Second, for workers with mediocre ability, bargaining power becomes con-

sequential for profit. Mediocre workers cannot develop skills as well as workers at the upper and bottom end of the ability

distribution. In this case, a profit-maximizing job design differs from one that maximizes joint surplus (inefficient job design).

Third, if multitasking provides workers with too much bargaining power based on improved outside opportunities, a firm will

prefer specialization in order to protect valuable skills by reducing employee mobility. Specialization is a well-known prac-

tice for protecting knowledge in the defense, security, IT, and pharmaceutical industries, where a firm can become vulnerable

if one employee has knowledge of all major tasks (Liebeskind, 1996). For instance, when a pharmaceutical firm asks its lab-

oratory technicians to test a substance, it does not provide them with information on its therapeutic properties (Liebeskind,

1996).

Our study contributes to job design literature by examining the implications of job design from the perspective of on-the-job

skill development and bargaining power. First, this study highlights that the endogenous development of task-specific skills

can lead to the inefficient adoption of specialization. Previous studies have already assessed firms' adoption of inefficient