Flexibility practices, wages and productivity: evidence from Norway

The purpose of this paper is to test whether the use of numerical and functional flexibility practices in firms affect their performance.

A combined employer/employee Norwegian data set is used to estimate production function like equations. The data stem from a questionnaire among Norwegian work organizations conducted in 2003 and are supplemented by register data from Statistics Norway about the organizations and their employees.

Numerical flexibility measures are negatively associated with wages and productivity per employee, although the association is stronger with wages than with productivity. This supports the idea that numerical flexibility fits with a low‐cost strategy. It is also found that a negative association between functional flexibility and wages and productivity per employee, with the association once again stronger with wages than with productivity, contrary to the hypothesis. The idea that high‐commitment human resource (HR) management has positive effects on wages and productivity was confirmed by other indicators of HR management.

The paper is limited by a cross‐sectional design and its relatively simple indicators of numerical and functional flexibility, which only show whether certain practices are used, rather than the intensity of their use.

This is one of the first studies that tests the effects of both numerical and functional flexible work practices on wages and productivity in a regulated labour market.