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Employment Protection, Product Market Competition and Growth

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  • Koeniger, Winfried

    ()
    (University of St. Gallen)

Abstract

It is commonly argued that labor market institutions such as employment protection worsen an economy’s performance and particularly so, if product markets become more competitive. Empirical evidence, however, has difficulties to detect a robust negative correlation between employment protection and growth. We show in a model with step-by-step innovations that whether employment protection decreases incentives to innovate and thus productivity growth depends on the degree of product market competition. For reasonable parameter values product market deregulation fosters growth substantially more in the flexible than in the constrained economy.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 554.

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Length: 29 pages
Date of creation: Aug 2002
Date of revision:
Handle: RePEc:iza:izadps:dp554

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Keywords: firing cost; step-by-step innovations; Schumpeterian growth;

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References

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  1. Aghion, Philippe, et al, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(3), pages 467-92, July.
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  3. Bertola, Giuseppe, 1994. "Flexibility, investment, and growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(2), pages 215-238, October.
  4. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and Innovation: An Inverted U Relationship," NBER Working Papers 9269, National Bureau of Economic Research, Inc.
  5. Gilles Saint Paul, 1999. "The political economy of employment protection," Economics Working Papers 355, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, Elsevier, vol. 41(3-5), pages 771-782, April.
  7. Boeri, Tito & Nicoletti, Giuseppe & Scarpetta, Stefano, 2000. "Regulation And Labour Market Performance," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2420, C.E.P.R. Discussion Papers.
  8. Belot, M.V.K. & Boone, J. & Ours, J.C. van, 2002. "Welfare Effects of Employment Protection," Discussion Paper, Tilburg University, Center for Economic Research 2002-48, Tilburg University, Center for Economic Research.
  9. Saint-Paul, G., 1995. "Employment Protection, International Specialization, and Innovation," DELTA Working Papers, DELTA (Ecole normale supérieure) 95-31, DELTA (Ecole normale supérieure).
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  12. Harris, Christopher & Howitt, Peter & Vickers, John & Aghion, Philippe, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Scholarly Articles 12375013, Harvard University Department of Economics.
  13. Olivier Blanchard & Francesco Giavazzi, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," NBER Working Papers 8120, National Bureau of Economic Research, Inc.
  14. Giulio Fella, 2000. "Investment in General Training with Consensual Layoffs," Working Papers, Queen Mary, University of London, School of Economics and Finance 418, Queen Mary, University of London, School of Economics and Finance.
  15. Bertola, Giuseppe, 1999. "Microeconomic perspectives on aggregate labor markets," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 45, pages 2985-3028 Elsevier.
  16. 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.
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  18. Andrea Bassanini & Ekkehard Ernst, 2002. "Labour Market Institutions, Product Market Regulation, and Innovation: Cross-Country Evidence," OECD Economics Department Working Papers 316, OECD Publishing.
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Citations

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Cited by:
  1. Sebastian G. Kessing, 2006. "Employment Protection and Product Market Competition," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 108(2), pages 339-352, 07.
  2. Raquel FONSECA & Natalia UTRERO- GONZALEZ, 2005. "Financial Development, Labor and Market Regulations and Growth," Finance, EconWPA 0509016, EconWPA.
  3. Norbert Berthold & Rainer Fehn, 2003. "Unemployment in Germany: Reasons and Remedies," CESifo Working Paper Series 871, CESifo Group Munich.

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