Innovation Regimes, Job Creative Destruction and the Labour Market

According to mainstream scholars, European employement and productivity faltered because rigid labour markets hinder the adjustement to the new ICT technologies. Whereas this view matches the raise of unemplyement in low quality jobs, it is not able to explain the differential rates of job creation in high tech jobs. This paper attempts to investigate the determinants of job creation in different part of the job distribution by introducing entrant-incumbent heterogeneity in a vintage model with labour market imperfections. It will be shown how different innovation regimes might translate into different labour market and productivity outcomes. In particular, in periods of faster technical change, countries oriented versus incremental innovations, i.e. Germany, turn out to be disadvantaged w.r.t. countries where entry barriers for innovation firms are lower, i.e. the US. Moreover, the paper suggests possible ways in which regulatory reforms end up affecting the job-wage distributions. Finally, the endogeneity of entry barriers might hinge upon the shape of the skill distribution.