Is flexible labour good for innovation? Evidence from firm-level data

Whether the use of flexible workers is damaging to innovation or not depends on the dominant innovation regime in a sector. In sectors with a 'routinised' innovation regime, high shares of low-paid temporary workers have a negative impact on the probability that firms invest in R&D. In sectors that tend towards a 'garage business' regime, however, flexibility has no impact. The two innovation regimes differ in the nature of their knowledge base: reliance on generally available knowledge or dependence on a firm's historically accumulated knowledge base. Innovation in the latter regime benefits from longer job durations. Our results are consistent with findings in macro-level studies that coordinated market economies with rigid labour markets have higher labour productivity gains than liberalised market economies.