Does an Internal Labor Market Really Hinder Firm Innovatioin

This study examines the relationship between ILMs and organizational innovation. Based on the knowledge management perspective, ILMs contain double-edged properties for organizational innovation in that they can repress the creation of new knowledge but also facilitate knowledge sharing and integration within the organization. We attempt to uncover the conditions under which negative effects of ILMs are dominated by their positive effects on organizational innovation. Our empirical analysis shows that ILMs were positively associated with organizational innovation and functional workforce diversity enhanced the positively relationship between ILMs and organizational innovation under more dynamic environments. These results provide theoretical and practical implications for the reevaluation of ILMs.