Lean Production and Firm Performance: Identifying Technological Change in Manufacturing Firms

Abstract:     
While several developments point to rapid technological progress associated with firm restructuring in American manufacturing industry in the last 15 years, notably strong productivity growth and rising wage differentials, the precise nature of this technological change is still open to interpretation. Such evidence is necessary to evaluate the alternative view that restructuring and productivity growth in manufacturing had more to do with pervasive downsizing and retrenchment rather than true technological change. This paper looks for evidence suggesting the presence of the most commonly invoked example of such technological progress: the emergence of flexible manufacturing (also called lean production). Using a detailed account of flexible manufacturing, the paper argues that the its emergence should be associated with a link across firms between inventory changes (or differences in levels), and financial performance. Empirical investigation reveals a strong link between inventories and firm performance in major three-digit industries, suggesting that flexible manufacturing played an important role in restructuring in these industries in the 1980s.

JEL Classification: G34, O30, L23

working papers series