Training and Innovation in Italian Manufacturing Firms

TL;DR

This study examines how Italian manufacturing firms' skill development strategies influence their innovation activities, highlighting the importance of internal training for circular innovation and external recruitment for all innovation types.

Contribution

It develops an adjustment-cost framework linking human capital and institutional theories, providing new insights into skill strategies and innovation in manufacturing firms.

Findings

Internal training is especially effective for circular innovations.

External recruitment is necessary for all innovation types.

Training positively correlates with innovation adoption.

Abstract

This paper analyses how firms' skill development strategies affect their propensity to introduce innovation. We develop an adjustment-cost framework that links human capital theory and institutionalist and evolutionary approaches, considering innovation as an activity that entails costs in labour adjustment arising either from the training activities of workers or the recruitment of skilled employees. Using a two-wave panel of Italian manufacturing firms observed in 2017-2018 and 2019-2020, we analyse firms' adoption of total, product, process, and circular innovation as a function of internal training practices and of external skills acquisition. Overall, the empirical analysis confirms the expected positive relationship between training and innovation, while also revealing important nuances in the workforce upskilling strategies required for different types of innovation. Moreover, while training activities and skills development are essential across all forms of innovation, our findings indicate that internal training is particularly effective in supporting the implementation of circular innovations. By contrast, external recruitment appears to be consistently necessary whenever innovations are introduced, regardless of their type.