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Labor flexibility and innovation: the importance of firms’ heterogeneity

Author

Listed:
  • Marco Augliera

    (University of Trento)

  • Gabriella Berloffa

    (University of Trento)

  • Fabio Pieri

    (University of Trento)

Abstract

This work investigates the relationship between the numerical flexibility of a firm’s workforce and its innovative performance, taking into account the heterogeneity of firms and labor contracts. Using longitudinal data on Italian firms, we find that the share of temporary employees has a positive and significant effect on innovation for small and micro firms in low-tech and less knowledge-intensive sectors and a negative effect for medium and large firms in high-tech and knowledge-intensive sectors. These results suggest that managers and entrepreneurs may use temporary employment as an effective human resource practice to foster innovation in those firms whose technology or knowledge do not require vast and firm- specific investments. They also highlight possible unintended consequences of changes in the employment protection legislation for firms’ innovative performance. Functional flexibility (training policies) and wage flexibility (second-level wage bargaining scheme) are neither substitutes nor complements to numerical flexibility, suggesting that firms use numerical, functional, and wage flexibility in different combinations.

Suggested Citation

  • Marco Augliera & Gabriella Berloffa & Fabio Pieri, 2022. "Labor flexibility and innovation: the importance of firms’ heterogeneity," Development Working Papers 481, Centro Studi Luca d'Agliano, University of Milano.
    • Handle: RePEc:csl:devewp:481
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    More about this item

    Keywords

    Numerical flexibility; labor contracts; firm innovation; industrial relations;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management
    • M55 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Contracting Devices
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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