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Employment Protection, International Specialization, and innovation

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  • Gilles Saint-Paul

Abstract

We develop a model to analyze the implications of firing costs on incentives for R & D and international specialization. The key idea is that, to avoid paying firing costs, the country with a rigid labor market will tend to produce relatively secure goods, at a late stage of their product life cycle. Under international trade, an international product cycle emerges where, roughly, new goods are first produced in the low firing cost country and then move to the high firing cost country. We show that in the closed economy, an increase in firing costs does not necessarily imply a reduction in R & D; it crucially depends on the riskiness of R & D activity relative to production activity. In the open economy, however, an increase in firing cost is much more likely to reduce R & D intensity.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 96/16.

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Length: 24
Date of creation: 01 Feb 1996
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Handle: RePEc:imf:imfwpa:96/16

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References

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  1. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers, Centre for Economic Performance, LSE dp0407, Centre for Economic Performance, LSE.
  2. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers, Pennsylvania State - Department of Economics 1-87-5, Pennsylvania State - Department of Economics.
  3. Saint-Paul, Gilles, 1997. "Is labour rigidity harming Europe's competitiveness? The effect of job protection on the pattern of trade and welfare," European Economic Review, Elsevier, Elsevier, vol. 41(3-5), pages 499-506, April.
  4. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
  5. Bertola, Giuseppe, 1994. "Flexibility, investment, and growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(2), pages 215-238, October.
  6. Cahuc, Pierre & Michel, Philippe, 1996. "Minimum wage unemployment and growth," European Economic Review, Elsevier, Elsevier, vol. 40(7), pages 1463-1482, August.
  7. Aghion, Philippe & Howitt, Peter, 1996. " Research and Development in the Growth Process," Journal of Economic Growth, Springer, Springer, vol. 1(1), pages 49-73, March.
  8. Saint-Paul, Gilles, 1996. "Unemployment and increasing private returns to human capital," Journal of Public Economics, Elsevier, Elsevier, vol. 61(1), pages 1-20, July.
  9. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers, DELTA (Ecole normale supérieure) 90-12, DELTA (Ecole normale supérieure).
  10. Dale T Mortensen & Christopher Pissarides, 1995. "Technological progress," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 2085, London School of Economics and Political Science, LSE Library.
  11. Gilles Saint-Paul, 1994. "Are the Unemployed Unemployable?," IMF Working Papers 94/64, International Monetary Fund.
  12. Bean, Charles & Pissarides, Christopher, 1993. "Unemployment, consumption and growth," European Economic Review, Elsevier, Elsevier, vol. 37(4), pages 837-854, May.
  13. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(5), pages 915-38, October.
  14. Aghion, Philippe & Howitt, Peter, 1994. "Growth and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 477-94, July.
  15. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 64, University of Warwick, Department of Economics.
  16. Cohen, Daniel & Saint-Paul, Gilles, 1994. "Uneven technical process and job destructions," CEPREMAP Working Papers (Couverture Orange) 9412, CEPREMAP.
  17. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago 91-5, Federal Reserve Bank of Chicago.
  18. Saint-Paul, Gilles, 1994. "Unemployment, wage rigidity, and the returns to education," European Economic Review, Elsevier, Elsevier, vol. 38(3-4), pages 535-543, April.
  19. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
  20. Boone, Jan, 2000. "Technological Progress, Downsizing and Unemployment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(465), pages 581-600, July.
  21. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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