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Product Market Conditions and Job Design

Yijiang Wang

Working Papers from Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus)

Abstract: By linking product market factors to job design, this paper provides an explanation to the puzzling question of why firms under rather similar labor market conditions sometimes adopt homogeneous, but other times heterogeneous, job designs. Compared to broadly defined jobs (BDJs), narrowly defined jobs (NDJs) help to save training cost. But, under NDJ, coordination is more difficult and the odds of a quality problem greater, which in the linear-city model adopted in this paper means a location shock to the firm. When consumer sensitivity to product specification (travel cost) is sufficiently high (low), a firm will (not) adopt BDJ to avoid a location shock and the resulting intensified price competition. In the intermediate range of travel cost, a duopolist prefers to let the other firm bear the extra training cost of BDJ, but would incur the cost itself if the other does not. In this range, if entry is simultaneous, multiple equilibria arise and they do not tell which firm will adopt BDJ or NDJ. If entry is sequential, the number of equilibria is reduced from three to one, in which the early comer will adopt NDJ and the late comer BDJ. A monopolist's job design choice is always deterministic. A job design may have a positive or negative social welfare implication depending on market structure and travel cost.

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