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Labour Market Rigidity And Firms' R&D Strategies

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    In The traditional explanations of Italian industry’s low commitment to R&D activities mainly rest on the firms’ size and relative specialisation of the national economy. We argue that they are not sufficient to justify the Italian anomaly; instead, in our opinion, it above all depends on the well-known rigidity of the Italian labour market. To show this, we first take into account the variability of innovation patterns through the economic system by adopting Pavitt’s taxonomy as our analytical instrument. We then demonstrate that the main factor underlying Italian industry’s management strategies in research is that supplier-dominated and scale-intensive industries in Italy are desperately superficial in their commitment to R&D as a source of innovation. This situation, as unusual as it appears at first sight, has been so far economically viable, because in the supplier-dominated and scale-intensive categories, and within the limits of technology, research and investment in machinery are interchangeable to some extent as means of innovation. Our results seem to suggest that a substitution effect between spending on R&D and investment in machinery indeed is working in Italy in these two sectors. The fact that the low R&D commitment continues at all stages of the economic cycle suggests that the Italian phenomenon may be the result of a constant tendency among companies to counter the rigidity inherent in the deployment of labour as a factor of production. This rigidity is a circumstance very frequently accounted for in the explanation of the higher economic growth in the US with respect to European countries. The novel and major finding of our study is that the rigidity of the labour market - besides being classifiable in economic models as a generic cause of the slower growth in a European country - emerges as a specific cause in models based on innovation theory, via firms’ lower commitment to R&D.

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    Paper provided by Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY in its series CERIS Working Paper with number 200404.

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    Length: 19 pages
    Date of creation: Jun 2004
    Handle: RePEc:csc:cerisp:200404
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    1. Dosi, Giovanni, 1993. "Technological paradigms and technological trajectories : A suggested interpretation of the determinants and directions of technical change," Research Policy, Elsevier, vol. 22(2), pages 102-103, April.
    2. Kamien,Morton I. & Schwartz,Nancy L., 1982. "Market Structure and Innovation," Cambridge Books, Cambridge University Press, number 9780521293853, October.
    3. Pavitt, Keith, 1984. "Sectoral patterns of technical change: Towards a taxonomy and a theory," Research Policy, Elsevier, vol. 13(6), pages 343-373, December.
    4. Scherer, F M, 1992. "Schumpeter and Plausible Capitalism," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1416-1433, September.
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