Flexible working time as an opportunity to save costs and increase productivity

December 15, 2020

The Covid-19 pandemic has turned flexible working arrangements a new reality, but differences in employees' preferences and the financial implications for companies still require unravelling.

At the time, when the companies are in the quest for competitive advantages in the global economy, cost reductions and productivity gains are becoming increasingly important - well-designed working time arrangements and efficient use of human resources can contribute significantly to both. A key challenge is how to manage to strike the balance between optimal division of the employees' time between work and leisure and the employer's goal of profitability.

It appears from Raul Ruubel's doctoral thesis "Working Schedules and Efficient Time-Use in R&D Work" defended at TalTech Department of Economics and Finance that provision of flexible working options may help achieve productivity gains and reductions in personnel costs if it can be assured that the individual characteristics of the employees are taken into account.

The supervisor of the doctoral thesis, Professor at TalTech Department of Economics and Finance Aaro Hazak says, "A key source of distortion in use of flexitime comes from individual heterogeneities in preferences for work arrangement - many employees prefer a working week which is concentrated in 3-4 days, others prefer a working week which is spread over 6-7 days and some prefer the standard five-day working week. Employees' preferences for daily working schedules are also different."

If employees are required to work during hours that they would prefer not to allocate to their work, they may wish to get a wage premium for the inconvenience. Moreover, using labour resources like this is inefficient because work outcomes or work commitment may be impaired. This in turn may lead to wages being suboptimal. If an employee could work at the time convenient for him or her and maximise efficiency, the employee could receive higher wages. There may be cases where wages paid to an employee are not proportional to the employee's work performance. If the employer pays an employee remuneration for optimal performance, but the employee's actual work output is smaller or of a lower quality, it will decrease the company's profitability and reduce its competitive advantages. Consequently, work schedules can have potentially large financial implications for companies, on both the revenue side and the cost side.

An employer can achieve cost savings through lower absenteeism because of employees' better health and lower staff turnover because of higher job satisfaction. However, coordinating employees working at different times can potentially entail additional costs to the employer and inefficient use of resources. Flexible working time arrangements also require better self-management skills in planning working time.

It was found in the doctoral thesis that employees often appreciate the possibility of flexible working schedules, regardless of the fact that despite of allowed flexibility in work hours they often work according to the standard nine-to-five work schedule. This may be due to the social norms for normal working hours, e.g. the operating hours of schools, kindergartens, shops, service facilities, public transport, etc.

One of the key general messages from the thesis is that considering the inherent and behavioural individual differences between employees is one of the solutions that can significantly improve the efficiency targets of working time arrangements. In addition, the results of the thesis reveal considerable disparities between the actual, contractually agreed and desired working schedules of employees and that the amount of overtime work is dependent on certain individual characteristics and work-related factors.

"It is important that employers consider the option of flexible working schedules as a possibility to support the company's competitiveness," Professor Aaro Hazak says.

However, the risks involved in flexible working arrangements include loss of control over overtime hours and being assigned work tasks at random times. To understand the different perspectives related to flexible working time, a broader discussion in society is needed to promote the idea that work schedules are not just a matter of formality and regulation, and that the potentially large financial consequences for companies warrant the alignment of actual work schedules with desired working time so that both the intellectual capacity and the time of employees can be used as efficiently as possible.
The project has received funding from the European Union's Horizon 2020 research and innovation programme under grant agreement No 952574 "Individual Behaviour and Economic Performance: Methodological Challenges and Institutional Context", under the Marie Sk?odowska-Curie grant agreement No 734712 "Institutions for Knowledge Intensive Development" and Estonian Research Council grant PUT315 "Towards the Knowledge Economy: Incentives, Regulation and Capital Allocation".

Source: doctoral thesis "Working Schedules and Efficient Time-Use in R&D Work", 23.11.2020

Additional information:

Professor of Institutional Economics at TalTech Aaro Hazak

Kersti Vähi,
TalTech Research Administration Office

Estonian Research Council

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