Labour Market Flexibility and Innovation: Geographical and Technological Determinants

Purpose – This paper aims to shed light upon the controversial relationship between labour market flexibility and innovation in Italy, paying attention both to inter-sectoral heterogeneity and to the regional differences. Design/methodology/approach – A set of hypotheses concerning the context-dependent relationship between labour market flexibility and innovation has been formulated by combining the main results of the theoretical literature concerning this topic. Regional patents are used as a proxy of innovation, while job turnover and wages represent labour market indicators of flexibility. Non-parametric models and dynamic structural specification of panel data have been estimated to test the aforementioned hypotheses. Findings – The results show that higher job turnover has a significant and negative impact on patent activities in regional sectors of northern Italy, while a positive and significant effect of blue and white collar wages has been generally found in the estimations. Research limitations/implications – There is a lack of updated information regarding labour market data in the Italian economy. Practical implications – Knowing in which sectoral and regional context labour flexibility has (or does not have) a positive influence on innovation plays a key role for the decisions of policy makers. Originality/value – This paper deals with the influence that the heterogeneity of the contexts (at the sectoral and geographical level) exerts on the relationship between the labour market and innovation. Moreover, the endogenous character of this relationship and the cumulative nature of innovative activities have been taken into account by means of a parsimonious dynamic econometric model.