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Work flexibility and firm growth: evidence from LEED data on the Emilia-Romagna region

Industrial policy and the future of manufacturing

Alessandro Arrighetti (), Luca Cattani (), Fabio Landini and Andrea Lasagni ()

Industrial and Corporate Change, 2021, vol. 30, issue 6, 1516-1538

Abstract: In the last decades, work flexibility emerged as a key requirement firms must meet to face volatile markets and highly differentiated product demand. This article compares two alternative approaches to strengthen work flexibility: internal flexibility, that is, practices that focus on the employees’ ability to perform a variety of highly qualified tasks in a context of stable employment relationships; and external flexibility, that is, practices that align employment and labor costs to demand fluctuations using a buffer of nonstandard employees involved in routine tasks. We empirically verify whether both practices are able to boost sales growth using a linked employer-employee panel of manufacturing firms from the Emilia-Romagna region (Italy). While internal flexibility positively affects firm growth, external flexibility is at best not significant, and in some empirical specifications, it appears to hamper firm growth. Such a negative effect, however, decreases when we limit the analysis to industries with high demand volatility and cost-based competition. The related managerial and policy implications are discussed.

Date: 2021
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