Communication costs are a crucial link between investments in information and
communication technology (ICT) and organisational structure. In many firms, the
technology has substantially decreased the time needed for production, but rarely affected
the time required for communication.
Consequently, this has become much more of a burden in processes of increased
productivity. In an effort to reduce meetings and consultation, functions have been
broadened to ensure that individual workers oversee more consequences of their actions.
These findings, by Dutch economists Lex Borghans and Bas ter Weel, are published in
the February 2006 issue of the Economic Journal. The authors argue that the trade-off
between the costs of communication time and the advantages of the division of labour
determines firms’ organisational structure.
The authors estimate that in about 80% of the firms they examined, ICT mainly improved
the efficiency of pure production work, while in 20% it benefited communication – for
example, better access to dossiers and internal routing of individual claims in insurance
companies.
In the first group, they observe an increase in hierarchical levels and a fall in both diversity
of employees and team size.
In the second group, quite the opposite occurred. Tasks here became more specialised and
the required skill level decreased. These establishments typically belong to larger
organisations, export part of their production, use more advanced technologies, face a
higher degree of competition and compete in high-quality segments of the market.
The findings of this study also help to explain the recent increase in skill requirements in the
workforce. It is estimated that during the years of rapid diffusion of computers, the demand
for high-skilled workers has annually grown 3% faster than that for low-skilled workers.
The former spend a much larger fraction of their time on communication. Productivity
therefore especially increased in low-skilled jobs, reducing the demand for this group.
So a simple theory of the division of tasks among workers helps to illuminate the observed
changes in the organisational structure and labour demand as a result of the adoption of
computer technology.
ENDS
Notes for editors: ‘The Division of Labour, Worker Organisation and Technological
Change’ by Lex Borghans and Bas ter Weel is published in the February 2006 issue of the
Economic Journal.
The authors are at Maastricht University in the Netherlands.
For further information: contact Bas ter Weel on +31-43-388-3703/3821 (email:
b.terweel@merit.unimaas.nl); or RES Media Consultant Romesh Vaitilingam on 0117-983-
9770 or 07768-661095 (email: romesh@compuserve.com).