Productivity, Innovation Strategies and Industrial Relations in SME Empirical evidence for a local manufacturing system in Northern Italy

The paper aims to provide an original contribution evaluating several kinds of relations between four areas of innovation activities - training, technology, organization, ICT – industrial relations and firm’s economic performance. Quantitative evidence for a SME based local production system is provided by exploiting two datasets: the first is derived from a direct survey carried out in 2005 collecting data on innovations, labour flexibility and industrial relations; the second is represented by a panel of official balance sheets data for the period 1998-2004. The analysis is divided in two consequential parts. We first examine the drivers of different innovation strategies. Among the many factors and control variables investigated as stimulating innovations, we focus in particular on industrial relations, labour flexibility strategies, and firm’s past economic trends. Second, we exploit the aforementioned innovation indicators as potential drivers of firm productivity. Though the core of the analysis is based on a cross section framework the two related steps and the rich set of information allow coping with endogeneity issues. Training activities and organizational changes show strong links with many industrial relations indicators, thus emerging as industrial relations driven innovations. The ICT innovation index results more influenced by firms past performances, than by industrial relations indicators, as technological innovation does. The analysis about labour productivity drivers shows that training activities are the most relevant factors. Then, ranked consequently, technological innovation, organisational innovations and, finally, ICT also appear to impact on productivity levels. It is worth noting that the role of ICT emerges more robustly when endogeneity is specifically addressed. Finally, the role of firm size seems here to be overshadowed by other drivers.