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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