Is Flexible Labor Good for Innovation? Evidence from Russian Firm-level Data

Abstract

T he level of innovation activity of the Russian enterprises is inferior to the level of innovation activity of enterprises in developed countries. At the same time, Russian enterprises actively use fixedterm contracts, which help them to reduce the labour costs and adapt to changes in demand, to increase the flexibility of labor and improve the selection of employees at the workplaces. Fixed-term contracts can contribute to innovation, because they enhance the flexibility of labor relations and create savings in the use of workers. However, fixed-term contracts can reduce the likelihood of innovation because they reduce investment in human capital, leading to a reduction in labor productivity. Which trends dominate in labour relations is the subject of this study. For the study, we was used the data about Keywords: innovative activity of enterprises; types of innovation; fixed-term contracts; non-standard employment; human capital and innovation; investment; Russia enterprises from the annual Russian Enterprises Survey in 2014. The sample is representative for Russia and includes small, medium and large enterprises with more than 30 employees in seven sectors (mining, industry, construction, transport and communications, trade, finance, business services). For the analysis, we used bivariate probit model, Heckman correction model and probit model with continuous endogenous regressor (the share of workers with fixed-term labour contracts). The results showed that fixed-term contracts have a positive effect on the innovation activity of enterprises only when they are used in a limited quantity. With an increase in the percentage of workers in enterprises with fixedterm contracts, the likelihood of innovation activity of enterprises declines.

The impact of temporary workers on the conversion of innovation efforts into product innovations: the case of Spanish companies

“…To some extent this result is consistent with the findings of Kleinknecht et al (2014). High-and medium-technology companies tend to Schumpeter Mark 1 entrepreneurial modes of innovation in which the use of flexible employment could have a lower negative impact on innovation outputs because these workers represent a small share of the total workforce (See, for instance, Smirnykh, 2016 andZhou et al, 2011) As a general rule, the use of temporary workers does not have a positive impact on the performance of innovation investments. However, the effect of short-term hires is less detrimental in high-and medium-technology firms.…”

“…For instance, Altuzarra and Serrano (2010) noted that a firm's probability of innovating and carrying out R&D increases as the rate of use of non-core workers rises, but only up to a threshold. In the same line, the study of Smirnykh (2016) says that fixed-term contracts have a positive influence in the level of innovation when the share of temporary workers does not exceed the 5% of the payroll. The study of Kleinknecht et al (2014) shows that the impact of flexible workers on innovation depends on the dominant innovation regime in a sector.…”

Modeling the Impact of Technological Development and Imports on Employment in Russia

“…долю занятого населения, которая выпадает из современных процессов создания новых идей, продуктов, технологий. В исследовании (Smirnykh, 2016) на примере 2003 компаний России за 2014 г. выявлена обратная взаимосвязь между срочными трудовыми договорами и инновационной активностью. По мнению автора, инновационная деятельность компаний требует не только гибких трудовых контрактов, но и необходимых компетенций сотрудников, что может быть достигнуто при обучении в рамках долгосрочных трудовых отношений.…”

Labour market rigidity and firm innovation

“…Battisti and Vallanti (2013) investigate the effects of flexible wage contracts and temporary employment contracts on worker effort and firm performance, depending on job categories. Conversely, studies by Smirnykh (2016) and Franceschi and Mariani (2016) argue that deregulation negatively affects incentives for investing in training and the nature of the knowledge base.…”

“…Existing empirical studies on labour market regulations' impact on firm innovation have produced mixed results (Bartelsman et al, 2016; Dughera et al, 2021; Griffith & Macartney, 2014; Hoxha & Kleinknecht, 2020; Smirnykh, 2016). The underlying mechanism remains unclear, with studies considering factors such as uncertainty in worker training investment and flexible recruitment related to moral hazard and non‐contractible cases.…”