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Employment Protection Legislation, Multinational Firms and Innovation

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  • Griffith, Rachel
  • Macartney, Gareth

Abstract

The theoretical effects of labour regulations such as employment protection legislation (EPL) on innovation is ambiguous, and empirical evidence has thus far been inconclusive. EPL increases job security and the greater enforceability of job contracts may increase worker investment in innovative activity. On the other hand EPL increases adjustment costs faced by firms, and this may lead to under-investment in activities that are likely to require adjustment, including technologically advanced innovation. In this paper we find empirical evidence that both effects are at work - multinational enterprises locate more innovative activity in countries with high EPL, however they locate more technologically advanced innovation in countries with low EPL.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7628.

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Date of creation: Jan 2010
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Handle: RePEc:cpr:ceprdp:7628

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Related research

Keywords: employment protection; Innovation; multinational firm location;

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References

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  1. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 569-600, 05.
  2. Alejandro Cunat & Marc J. Melitz, 2007. "Volatility, labor market flexibility, and the pattern of comparative advantage," LSE Research Online Documents on Economics 19714, London School of Economics and Political Science, LSE Library.
  3. Colin Mayer & Wendy Carlin, 1999. "Finance, Investment and Growth," Economics Series Working Papers 1999-FE-09, University of Oxford, Department of Economics.
  4. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
  5. Bassanini, Andrea & Ernst, Ekkehard, 2001. "Labour market regulation, industrial relations, and technological regimes: a tale of comparative advantage," CEPREMAP Working Papers (Couverture Orange) 0117, CEPREMAP.
  6. Roberto M. Samaniego, 2006. "Employment Protection and High-Tech Aversion," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 224-241, April.
  7. Ekholm, Karolina & Hakkala, Katariina, 2003. "Location of R&D and High-Tech Production by Vertically Integrated Multinationals," Working Paper Series in Economics and Finance 538, Stockholm School of Economics.
  8. Haaland, Jan I. & Wooton, Ian, 2003. "Domestic Labour Markets and Foreign Direct Investment," CEPR Discussion Papers 3989, C.E.P.R. Discussion Papers.
  9. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  10. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  11. Akkermans, Dirk & Castaldi, Carolina & Los, Bart, 2007. "Do ‘Liberal Market Economies’ Really Innovate More Radically than ‘Coordinated Market Economies’? Hall & Soskice Reconsidered," GGDC Research Memorandum GD-91, Groningen Growth and Development Centre, University of Groningen.
  12. Hall, Peter A. & Soskice, David (ed.), 2001. "Varieties of Capitalism: The Institutional Foundations of Comparative Advantage," OUP Catalogue, Oxford University Press, number 9780199247752.
  13. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
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Cited by:
  1. Sophia Lee, 2013. "Examining policy configurations as conditions for long-term unemployment and non-standard employment in OECD countries using fuzzy-set analysis," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(6), pages 3521-3536, October.
  2. Dan Andrews & Chiara Criscuolo, 2013. "Knowledge-Based Capital, Innovation and Resource Allocation," OECD Economics Department Working Papers 1046, OECD Publishing.
  3. Murphy, Gavin & Siedschlag, Iulia & McQuinn, John, 2012. "Employment Protection and Innovation Intensity," Papers WP445, Economic and Social Research Institute (ESRI).

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