External Churning and Internal Flexibility: Evidence on the Functional Flexibility and Core-Periphery Hypotheses

Functionally flexible systems for organizing work may reduce job instability and insecurity by reducing employers’ reliance on job cuts or contingent work to respond to changes in their environments. Related arguments hypothesize that contingent work allows firms to adjust labor while “buffering” their core of permanent workers from job instability. We find evidence that internally flexible work systems are associated with reduced involuntary and voluntary turnover in manufacturing but that contingent work and involuntary turnover of the permanent workforce are positively related regardless of sector, in contrast to the prediction of the core-periphery hypothesis. Disciplines Business Administration, Management, and Operations | Human Resources Management This journal article is available at ScholarlyCommons: http://repository.upenn.edu/mgmt_papers/14 External Churning and Internal Flexibility: Evidence on the Functional Flexibility and Core-Periphery Hypotheses Peter Cappelli Department of Management The Wharton School University of Pennsylvania Philadelphia, PA 19104 and NBER 215-898-2722 David Neumark Department of Economics Michigan State University East Lansing, MI 48824 and NBER 517-353-7275 Acknowledgments: The authors thank William H. Carter for careful research assistance, Arne Reznek and colleagues at the Center for Economic Statistics of the U.S. Bureau of the Census for their help with data issues, and Michael Handel, David Levine, and anonymous referees for helpful suggestions. This research is part of a program of studies using the National Employer Surveys that is conducted by the National Center on Post-Secondary Improvement and funded by a grant from the U.S. Department of Education’s Office of Educational Research and Improvement. External Churning and Internal Flexibility: Evidence on the Functional Flexibility and Core-Periphery Hypotheses Abstract: Functionally flexible systems for organizing work may reduce job instability and insecurity by reducing employers’ reliance on job cuts or contingent work to respond to changes in their environments. Related arguments hypothesize that contingent work allows firms to adjust labor while “buffering” their core of permanent workers from job instability. We find evidence that internally flexible work systems are associated with reduced involuntary and voluntary turnover in manufacturing, but that contingent work and involuntary turnover of the permanent workforce are positively related regardless of sector, in contrast to the prediction of the “core-periphery” hypothesis. Functionally flexible systems for organizing work may reduce job instability and insecurity by reducing employers’ reliance on job cuts or contingent work to respond to changes in their environments. Related arguments hypothesize that contingent work allows firms to adjust labor while “buffering” their core of permanent workers from job instability. We find evidence that internally flexible work systems are associated with reduced involuntary and voluntary turnover in manufacturing, but that contingent work and involuntary turnover of the permanent workforce are positively related regardless of sector, in contrast to the prediction of the “core-periphery” hypothesis.