Manufacturing Productivity with Worker Turnover

69 Pages Posted: 25 Sep 2018 Last revised: 24 May 2022

See all articles by Ken Moon

Ken Moon

University of Pennsylvania - The Wharton School

Patrick Bergemann

University of Chicago - Booth School of Business

Daniel Brown

University of California, Berkeley

Andrew Chen

Apple Inc.

James Chu

Stanford University, Department of Sociology, Students; Stanford University - Freeman Spogli Institute for International Studies

Ellen Eisen

University of California, Berkeley

Gregory Fischer

London School of Economics & Political Science (LSE)

Prashant Kumar Loyalka

Stanford University - Freeman Spogli Institute for International Studies

Sungmin Rho

Graduate Institute of International and Development Studies (IHEID)

Joshua Cohen

Apple University

Date Written: May 23, 2022

Abstract

To maximize productivity, manufacturers must organize and equip their workforces to efficiently handle variable workloads. Their success depends on their ability to assign experienced and skilled workers to specialized tasks and coordinate work on production lines. Worker turnover may disrupt such efforts. We use staffing, productivity, and pay data from within a major consumer electronics manufacturer's supply chain to study how firms should manage worker turnover and its effects using production decisions, wages, and inventory. We find that worker turnover impedes coordination between assembly line co-workers by weakening knowledge sharing and relationships. Publicly available unit-cost estimates imply that worker turnover accounts for $206--274 million in added direct expenses alone from defectively assembled units failing the firm's stringent quality control. To evaluate managerial alternatives, we structurally estimate a dynamic equilibrium model (Experience-Based Equilibrium, Fershtman and Pakes 2012) encompassing (1) workers' endogenous turnover decisions and (2) the firm's weekly planning of its production scheduling and staffing in response. In counterfactual analyses, a less turnover-prone, hence more productive, workforce significantly benefits the firm, reducing its variable production costs by 4.5%, or an estimated $928 million for the studied product. Such benefits justify paying higher efficiency wages even to less skilled workforces; further, interestingly, rational inventory management policies incentivize self-interested firms to reduce, rather than tolerate, turnover.

Keywords: Data-driven workforce planning, Empirical operations management, Employee turnover, Experience-Based Equilibrium, Production planning, Productivity, Reinforcement learning, Stochastic optimization, Structural estimation

Suggested Citation

Moon, Ken and Bergemann, Patrick and Brown, Daniel and Chen, Andrew and Chu, James and Eisen, Ellen and Fischer, Gregory and Loyalka, Prashant and Rho, Sungmin and Cohen, Joshua, Manufacturing Productivity with Worker Turnover (May 23, 2022). Available at SSRN: https://ssrn.com/abstract=3248075 or http://dx.doi.org/10.2139/ssrn.3248075

Ken Moon (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Jon M. Huntsman Hall
3730 Walnut St.
Philadelphia, PA 19104-6365
United States

Patrick Bergemann

University of Chicago - Booth School of Business

Daniel Brown

University of California, Berkeley

Andrew Chen

Apple Inc.

James Chu

Stanford University, Department of Sociology, Students ( email )

Stanford
United States

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

Ellen Eisen

University of California, Berkeley

Gregory Fischer

London School of Economics & Political Science (LSE)

Houghton Street
London, WC2A 2AE
United Kingdom

Prashant Loyalka

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

Sungmin Rho

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Joshua Cohen

Apple University ( email )

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