Trust-Based Work Time and Innovation: Evidence from Firm-Level Data

Abstract

The authors explore whether the introduction of trust-based working hours is related to the subsequent innovation performance of firms. Based on a panel data set of German establishments, the study uses a propensity score matching approach that considers only firms that did not use trust-based work contracts initially. Results show that firms that adopt such contracts tend to be 12 to 15% more likely to improve products and 6 to 7% more likely to undertake process innovation. These results hold when controlling for another form of flexible working-time arrangement, namely working-time accounts. Thus, the positive relationship between the adoption of trust-based working hours and innovation seems to be driven by the degree of employee control and self-management over working time, rather than by merely allowing working-time flexibility.