Cutting wages and firing people may not be a very good idea. Or so says Giuseppe Simigliani (26), who defended his Master’s thesis on export performance and labour flexibility this week.
The governments of the Pigs (Portugal, Ireland, Greece and Spain) are in troubled waters, impelled to liberalize their labour markets in order to escape the economic crises. Of course economically this makes sense, but they must explain it to their citizens. Or does it make sense?
Giuseppe Simigliani, who completed his Master’s degree in management at the faculty of Technology, Policy and Management, doesn’t think this is a very good strategy. “The austerity measures imposed by the European Union will destroy the economies in the long term,” he says, before rephrasing to this rather harsh statement. “The economies will perform worse.”
For some companies liberalizing the labor market is indeed advantageous, the young engineer believes. This is especially the case for small, still growing, innovative companies. “We call those companies Schumpeterian 1 companies,” says Simigliani. The spin-off companies of YesDelft are examples of these types of companies.
“Old, large innovative firms with strict guidelines for the amount of money they spend on research & development belong to the Schumpeterian 2 type of companies. For them a liberalized labour market is not good in the long run. If the market is liberalized they will fire people or hire people with short term contracts. They do this because it’s cheaper, but they underestimate the role of tacit knowledge, the knowhow of people who have been working for the company for a long time.”
For his research, Simigliani investigated about 150 innovative manufacturing companies. He added more scales to the Schumpeter 1 and Schumpeter 2 subdivision and categorized the companies. “I made a kind of Schumpeterness taxonomy,” Simigliani says, laughing, since the word Schumpeterness doesn’t really exist. He then looked at the amount of short- versus long-term contracts the firms had and how successful the companies were in exporting their products. The results were very clear. I didn’t expect such results.”
According to Simigliani, governments that want to liberalize their labour markets should not impose the same rules for all companies. “The labour market should be flexible for young companies and stable for older companies. This is a new sound,” the researcher concludes.
Simigliani is the first to be interviewed for the new series ‘The Graduate’, which will appear on this page every other week.
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