The Effect of Labor on Profitability: The Role of Quality

Zeynep Ton ()
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Zeynep Ton: Harvard Business School, Technology and Operations Management Unit

No 09-040, Harvard Business School Working Papers from Harvard Business School

Abstract: 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. 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.

Keywords: Labor Capacity Management; Quality; Retail Operations (search for similar items in EconPapers)
Pages: 33 pages
Date: 2008-09, Revised 2009-07
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:hbs:wpaper:09-040

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