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Innovation and skill upgrading: The role of external vs internal labour markets

Author

Listed:
  • Luc Behaghel

    (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, LEA - Laboratoire d'Economie Appliquée - INRA - Institut National de la Recherche Agronomique, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

  • Eve Caroli

    (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, PJSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres)

  • Emmanuelle Walkowiak

    (LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique, CEE - Centre d'études de l'emploi - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche - Ministère du Travail, de l'Emploi et de la Santé)

Abstract

Following technical and organisational changes, firms may react to increasing skill requirements either by training or hiring the new skills, or a combination of the two. Using matched datasets with about 1,000 French plants, we assess the relative importance of these external and internal labour market strategies. We show that skill upgrading following technological and organisational changes takes place mostly through internal labour markets adjustments. Consistently with the results in the literature, we find that new technologies and organisational changes are associated with an upward shift in the occupational structure within firms. We show that about one third of the upgrading of the occupational structure is due to hiring and firing workers on the external labour market, whereas two-thirds are due to promotions. Moreover, we find no compelling evidence of external labour market strategies based on "excess turnover". In contrast, French firms heavily rely on training in order to upgrade the skill level of their workforce. When splitting the sample across sectors, this pattern of results appears to be particularly strong for manufacturing firms whereas, in services, external labour market strategies tend to be more widespread. We then consider the determinants of the strategies chosen by firms. We argue that the relative cost of internal versus external labour market flexibility is likely to be critical and that it can be partly captured by firm size and by the density on the local labour market. We find that external labor market strategies tend to be more important when firms are located on high-density labor markets.

Suggested Citation

  • Luc Behaghel & Eve Caroli & Emmanuelle Walkowiak, 2008. "Innovation and skill upgrading: The role of external vs internal labour markets," PSE Working Papers halshs-00588316, HAL.
  • Handle: RePEc:hal:psewpa:halshs-00588316
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00588316
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    References listed on IDEAS

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    Cited by:

    1. Behaghel, Luc & Lorenceau, Adrien & Quantin, Simon, 2015. "Replacing churches and mason lodges? Tax exemptions and rural development," Journal of Public Economics, Elsevier, vol. 125(C), pages 1-15.
    2. Luc Behaghel & Julie Moschion, 2011. "Skilled labor supply, IT-based technical change and job instability," Working Papers halshs-00646595, HAL.
    3. Cyprien Batut & Eric Maurin, 2020. "Termination of Employment Contracts by Mutual Consent and Labor Market Fluidity," IAAEU Discussion Papers 202005, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    4. Fibla Gasparín, Ma. Teresa, 2010. "Staffing strategies in SME's: determinants of external recruitment and internal promotion," Working Papers 2072/179603, Universitat Rovira i Virgili, Department of Economics.
    5. Batut, Cyprien & Maurin, Eric, 2019. "From Ultima Ratio to Mutual Consent: The Effects of Changing Employment Protection Doctrine," IZA Discussion Papers 12440, Institute of Labor Economics (IZA).
    6. Philippe Askenazy & Julien Grenet, 2009. "Les managers français connaissent-ils leurs entreprises ? Les leçons de l’enquête REPONSE," Économie et Statistique, Programme National Persée, vol. 421(1), pages 53-82.
    7. Nicoletti, Giuseppe & von Rueden, Christina & Andrews, Dan, 2020. "Digital technology diffusion: A matter of capabilities, incentives or both?," European Economic Review, Elsevier, vol. 128(C).
    8. Antonioli, Davide & Manzalini, Rocco & Pini, Paolo, 2011. "Innovation, workers skills and industrial relations: Empirical evidence from firm-level Italian data," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(3), pages 312-326, May.
    9. Garcia-Canal, Esteban & Rialp-Criado, Alex & Rialp-Criado, Josep, 2013. "Speed of ICT integration strategies in absorptions: Insights from a qualitative study," European Management Journal, Elsevier, vol. 31(3), pages 295-307.

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    More about this item

    Keywords

    technical and organisational change; turnover; skill bias; training; internal labour markets;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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