Are temporary hires good or bad for innovation? The Italian evidence

This paper investigates the relationship between temporary workers and innovation. We model a firm’s choice concerning: (i) the mix of temporary and permanent workers; (ii) the optimal level of training intensity that firms choose by best-responding to the worker’s human capital investments. Results suggest that the innovation-enhancing combination of temporary and permanent workers exists and is unique. Using micro-data on Italian firms, we then find that the relationship between the firm-level share of temporary workers and innovation has indeed an inverted U form, in line with our theoretical expectations. This suggests that studies assuming a linear association may oversimplify the complex relationship between non-standard labor and innovation.