The Effect of Labor on Profitability: The Role of Quality

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.Labor Capacity Management, Quality, Retail Operations

In Search of the High Road: Meaning and Evidence

This article is the first in a series to celebrate the 70th anniversary of the ILR Review. We will be highlighting important research themes that have been featured in the journal over its many years of publication. In this article, Paul Osterman reviews research on the quality of jobs and recent debates over “High Road” and “Low Road” approaches to employment practices. Scholars and policy advocates frequently utilize the distinction between High Road and Low Road firms as a framework for efforts to improve the quality of work in low-wage employers. This article assesses the logic and evidence that underlies this construct. The author provides a definition of the concept and examines the evidence behind the assumption that firms have a choice in how they design their employment policies. He then takes up the assertion that firms that adopt a High Road model can “do well by doing good” and adds precision to this claim by reviewing the evidence that a profit-maximizing firm would benefit from following the High Road path. The article concludes by suggesting a research agenda and providing a framework for policy that flows from the conclusions drawn from the existing research base