Introduction This paper investigates labour market dynamics and corporate performance with a particular em- phasis on the financial performance and innovative activities of firms. The paper contributes to a growing literature that seeks to test the relation- ship between, on the one hand human resource management (Hoque, 1999; Patterson et al., 1997), ‘high-commitment management’ (HCM) British Journal of Management, Vol. 12, 287–306 (2001) © 2001 British Academy of Management Labour Market Flexibility, Human Resource Management and Corporate Performance 1 Jonathan Michie and Maura Sheehan-Quinn* School of Management and Organizational Psychology, Birkbeck College, Malet Street, London WC1E 7HX, UK and *University of Dallas, 1845 East Northgate Drive, Irving, TX 75062 corresponding author email: j.michie@bbk.ac.uk Labour market flexibility is often portrayed as a key to the competitive success of the UK and US economies. We surveyed several hundred firms in the UK, and using the resulting data (on over 200 manufacturing firms) this paper investigates the relation- ships between firms’ use of flexible work practices, human resource systems and indus- trial relations on the one hand, and corporate performance on the other hand. The results suggest that ‘low-road’ practices – short-term contracts, a lack of employer commitment to job security, low levels of training and low levels of human resource sophistication – are negatively correlated with corporate performance. In contrast, it is found that ‘high-road’ work practices – ‘high commitment’ organizations or ‘trans- formed’ workplaces – are positively correlated with good corporate performance. It is also found that human resource management practices are more likely to contribute to competitive success where they are introduced as a comprehensive package, or ‘bun- dle’ of practices. Significant interaction effects between human resource systems, trade unions and flexible work practices add further support to the bundling hypothesis. 1 This work was funded by The Leverhulme Trust (grant number F/112/AL), the Royal Economic Society and the University of London Central Research Fund, to whom we are grateful. We are indebted to Dr Sharon Milner who worked on the project full-time for a year, and who undertook much of the work arranging and supervising the survey of firms. We are also grateful to Dr Milner’s successor, Elaine McDonald, for research assistance. We have benefited from dis- cussing these issues with a number of colleagues, par- ticularly Professor David Guest, Dr Neil Conway and Dr Linda Trenberth, with whom we are working on a related project, funded by the ESRC’s Future of Work Programme; participants at the series of ‘HRM and performance’ workshops held in Birkbeck College’s School of Management and Organizational Psych- ology, in particular Mark Huselid; and also Professor Paul Teague. A number of colleagues generously supplied copies of their own questionnaires and details of their results, in particular Professor Steve Nickell, Dr Sandra Black and Professor Lisa Lynch, Professor Ichniowski, Dr Peter Berg and Dr Aileen Appelbaum, and Professor Paul Osterman. Patrick Burns, Director of Policy for the Industrial Society provided invalu- able advice on the use of HRM practices in UK firms. We are also grateful for comments from participants at a June 2000 Institute of Work Psychology seminar, University of Sheffield, in particular Dr Carolyn Axtell and Professor Toby Wall; from participants at the September 2000 British Academy of Management Annual Conference, Edinburgh and the April 2001 European Academy of Management Annual Confer- ence, Barcelona; and from three anonymous referees of this Journal.