The Role of Labor Market Rigidity in University - Industry R&D Collaboration

Universities have become increasingly conscious of the value of their intellectual assets. Companies have also gained awareness of the powerful synergies between their activities and the academic world, and university – industry relationships have become more widespread and diverse (Perkmann and Walsh, 2007). R&D university – industry collaboration (R&D UIC) has become a central feature of a national innovation system (Global Competitiveness Report 2010-2011).

While there exists a vast literature on R&D UIC (Freeman, 1991, 1995; Hagedoorn, Link and Vonortas, 2000; Lundvall, 1988; Lundvall, Johnson, Andersen and Dalum, 2001; Van Looy, Debackere, and Andries, 2003), the diverse nature of these collaborations within a changing innovation environment have prompted calls to re-examine their organizational dynamics (Ankrah and AL-Tabbaa, 2015; Perkmann and Walsh, 2007). Given that these collaborations are highly dependent on the underlying human and social capital in the economy (Ankrah and AL-Tabbaa, 2015; Brown and Duguid, 1991; Jacobsson, 2002; Williams, 2007), factors that influence the availability of skilled labor are key considerations for managers, policy makers and researchers in the field. These factors ultimately determine the sources and flows of knowledge in the economy, including the tacit knowledge so vital for innovation.

Despite the critical role of skilled labor in knowledge-based economies, there has been a noticeable lack of research on how labor market institutions, specifically the legal requirements faced by employers when hiring or firing, might influence R&D UIC. The degree to which flexible labor markets contribute to the wider economic success of a country is a question that is hotly contested by scholars. Since both public universities and industrial firms are important employers in a knowledge-based economy, the legal environment that surrounds and constrains them as employers may play a role in how they collaborate in R&D.

Our study addresses this gap in the literature. Integrating insights from the academic literature on university – industry collaborations with studies on labor market institutions and their effects, we develop a model showing how difficulty in hiring and firing workers has both direct and indirect effects on R&D UIC. To test our hypotheses, we build a dataset comprising 72 countries for which R&D labor market pool and labor market rigidity data are available. The results give broad support for our hypotheses. In terms of direct effects, the R&D labor market pool and laws that make hiring more difficult have statistically significant but opposite effects on R&D UIC. In terms of indirect effects, national laws that hinder employers’ ability to hire decrease the positive relationship between the R&D labor market pool and R&D UIC.

The current study contributes to the literature on national innovation systems by showing how labor market rigidities influence the degree of R&D collaboration between universities and industrial firms, a perspective largely overlooked in prior research. By demonstrating the direct and indirect effects of rigid hiring and firing laws, we provide insights that R&D managers and policy makers can draw on when interpreting and enacting labor market policy in knowledge-based economies.