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Flexible Labour, Firm Performance and the Dutch Job Creation Miracle

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Author Info
Alfred Kleinknecht
Remco Oostendorp
Menno Pradhan
C.W.M. Naastepad

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Abstract

Unlike internal ('functional’) forms of flexibility of labour, external ('numerical’) forms of flexibility (i.e. high shares of people on temporary contract or a high turnover of personnel) yield substantial savings on a firm’s wage bill. Savings on wage bills lead to higher job growth, but do not translate into higher sales growth. Externally flexible labour appears to be related to lower labour productivity growth, the effects being different for innovating vs non-innovating firms. We discuss these findings from firm-level and worker-level data against the background of the Dutch job creation miracle during the 1980s and 1990s. Modest wage increases and flexibilization of labour markets may indeed create lots of jobs. However, this is likely to happen at the expense of labour productivity growth, raising serious doubts about the long-run sustainability of a low-productivity--high-employment growth path.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 20 (2006)
Issue (Month): 2 (April)
Pages: 171-187
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Handle: RePEc:taf:irapec:v:20:y:2006:i:2:p:171-187

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Related research
Keywords: Flexible labour; determinants of labour productivity growth; wage costs; firm growth and employment; O31;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Paul Geroski & Steve Machin & John Van Reenen, 1993. "The Profitability of Innovating Firms," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 198-211, Summer. [Downloadable!] (restricted)
  2. Brouwer, Erik & Kleinknecht, Alfred, 1997. "Keynes-plus? Effective demand and changes in firm-level R&D: an empirical note," Serie Research Memoranda 0038, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
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  3. Naastepad, C. W. M. & Kleinknecht, Alfred, 2004. "The Dutch productivity slowdown: the culprit at last?," Structural Change and Economic Dynamics, Elsevier, vol. 15(2), pages 137-163, June. [Downloadable!] (restricted)
  4. Simon Gaechter & Armin Falk, . "Reputation and Reciprocity: Consequences for the Labour Relation," IEW - Working Papers iewwp019, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  5. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Kleinknecht, Alfred, 1998. "Is Labour Market Flexibility Harmful to Innovation?," Cambridge Journal of Economics, Oxford University Press, vol. 22(3), pages 387-96, May.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Catherine Fuss, 2008. "How do firms adjust their wage bill in Belgium ? A decomposition along the intensive and extensive margins," Research series 200801-31, National Bank of Belgium. [Downloadable!]
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  2. Philip Du Caju & Catherine Fuss & Ladislav Wintr, 2007. "Downward wage rigidity for different workers and firms : an evaluation for Belgium using the IWFP procedure," Research series 200712-21, National Bank of Belgium. [Downloadable!]
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