Temporary employment: curse or blessing for a firm’s absorptive capacity?

Abstract

Despite the importance of absorptive capacity (AC) for firms’ competitiveness, its antecedents are not yet fully understood. AC is a multidimensional construct, consisting of a firm's capability to acquire and assimilate new external knowledge (potential AC), followed by its capability to transform and exploit it (realized AC). Building on the insight that different AC dimensions vary in their nature and needs we predict that working with temporary employees will have an opposite effect on potential and realized AC. We test this proposition using firm-level data from the World Bank's Enterprise and Innovation Capability Survey for 2,228 firms in nine developing countries. We indeed find knowledge acquisition to benefit and knowledge exploitation to suffer from a firm's reliance on temporary employees. Our results thus identify a partial contradiction between the drivers of potential and realized AC. We find that a firm's integration mechanisms may potentially solve this contradiction. As all dimensions of AC are required for absorbing external knowledge, this research highlights an overlooked challenge.