The Effect of Labor Flexibility on Industries with High Technology in Iran

Nowadays many firms are looking for reduction of their costs including labor costs, in order to improve their competitiveness in the global markets. For this, firms are encouraged to employ non-permanent and informal labor force. These types of employees due to high institutional flexibility increase the power of the firm in reaction to market changes and fluctuations in demands. These employees, however, weaken the power of market for reconciliation to technological improvements as they show little training and skill. This paper studies the effect of flexibility of these sorts of employees on competitiveness of industries with high and medium technology in Iran. In order to this, the paper at first studies the existence of positive or negative effect of informal labor flexibility on competitiveness of a firm through expanding theoretical principles. Then, the paper using panel data approach investigates the effect in industries with high technologies in Iran (in of ISIC code) and for time period 1377 to 1383. The results reveal the fact that this effect is negative in activities and industries with high technology. Therefore, the firms require a decreased use of informal labor force in order to improve their competitiveness.