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

  • Luc Behaghel

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, LEA - Laboratoire d'Economie Appliquée - Institut national de la recherche agronomique (INRA) : UR1043, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)

  • Eve Caroli

    ()

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

  • Emmanuelle Walkowiak

    ()

    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans, CEE - Centre d'études de l'emploi - Ministère de l'Enseignement supérieur et Recherche - Ministère du Travail, de l'Emploi et de la Santé)

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.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00588316.

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Date of creation: Mar 2008
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Handle: RePEc:hal:psewpa:halshs-00588316
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  1. John M. Abowd & Patrick Corbel & Francis Kramarz, 1999. "The Entry And Exit Of Workers And The Growth Of Employment: An Analysis Of French Establishments," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 170-187, May.
  2. Philippe Askenazy & Eva Moreno Galbis, 2007. "The Impact of Technological and Organizational Changes on Labor Flows. Evidence on French Establishments," LABOUR, CEIS, vol. 21(2), pages 265-301, 06.
  3. Alexandra Spitz-Oener, 2006. "Technical Change, Job Tasks, and Rising Educational Demands: Looking outside the Wage Structure," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 235-270, April.
  4. Emmanuelle Walkowiak, 2006. "Renouvellement de la main-d'œuvre et modernisation des entreprises," Revue économique, Presses de Sciences-Po, vol. 57(6), pages 1205-1233.
  5. Sandra E Black & Lisa M Lynch, 2002. "What's Driving the New Economy? The Benefits of Workplace Innovation," Working Papers 02-03, Center for Economic Studies, U.S. Census Bureau.
  6. Van Reenen, John & Caroli, Eve, 2001. "Skill-Biased Organizational Change? Evidence from a panel of British and French establishments," Economics Papers from University Paris Dauphine 123456789/10093, Paris Dauphine University.
  7. Bauer, Thomas K. & Bender, Stefan, 2004. "Technological change, organizational change, and job turnover," Labour Economics, Elsevier, vol. 11(3), pages 265-291, June.
  8. Luc Behaghel & Nathalie Greenan, 2005. "Training and Age-Biased Technical Change : Evidence from French Micro Data," Working Papers 2005-06, Centre de Recherche en Economie et Statistique.
  9. Philippe Zamora, 2006. "Changements organisationnels, technologiques et recours à la formation dans les entreprises industrielles," Revue économique, Presses de Sciences-Po, vol. 57(6), pages 1235-1257.
  10. Fabien Postel-Vinay & Luc Behaghel, 2003. "Insécurité de l'emploi : le rôle protecteur de l'ancienneté a-t-il baissé en France ? Suivi d'un commentaire de Fabien Postel-Vinay," Économie et Statistique, Programme National Persée, vol. 366(1), pages 3-29.
  11. Bassanini, Andrea & Booth, Alison L. & Brunello, Giorgio & De Paola, Maria & Leuven, Edwin, 2005. "Workplace Training in Europe," IZA Discussion Papers 1640, Institute for the Study of Labor (IZA).
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