Labour productivity and innovation performance: The importance of internal labour flexibility practices

Abstract

This article develops and examines the idea that internal labour flexibility practices are beneficial for labour productivity and innovation performance of companies. This is tested in two studies using unique company level datasets. In Study 1, results obtained from 377 independent companies revealed that internal labour flexibility practices are positively related to objective labour productivity and its growth in the year following, also when controlled for objective labour productivity and objective external labour flexibility from the year before. In Study 2, results obtained from 4271 companies indicated that internal labour flexibility practices were positively related to product innovation and labour productivity. Findings suggest that internal labour flexibility practices benefit both labour productivity and innovation performance of companies. If innovation and labour productivity are considered key to long-term survival, firms and policymakers should consider internal labour flexibility practices.