Flexible Labor and Innovation Performance: Evidence from Longitudinal Firm-Level Data

Firms with high shares of workers on fixed-term contracts have significantly higher sales of imitative new products but perform significantly worse on sales of inno¬va¬tive new products (“first on the market”). High functional flexibility in “insider-outsider” la¬bor markets enhances a firm’s new product sales, as do training efforts and highly edu¬ca¬¬ted personnel. We find weak evidence that larger and older firms have higher new pro¬duct sales than do younger and smaller firms. Our findings should be food for thought to eco-nomists making unqualified pleas for the deregulation of labor markets.