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Employment protection, international specialization, and innovation

  • Saint-Paul, Gilles

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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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 46 (2002)
Issue (Month): 2 (February)
Pages: 375-395

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Handle: RePEc:eee:eecrev:v:46:y:2002:i:2:p:375-395
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  1. Saint-Paul, Gilles, 1994. "Unemployment, wage rigidity, and the returns to education," European Economic Review, Elsevier, vol. 38(3-4), pages 535-543, April.
  2. Saint-Paul, Gilles, 1992. "Are the Unemployed Unemployable?," CEPR Discussion Papers 689, C.E.P.R. Discussion Papers.
  3. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
  4. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 671-698.
  5. Francesco Daveri & Guido Tabellini, . "Unemployment, Growth and Taxation in Industrial Countries," Working Papers 122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  6. Dale T. Mortensen & Christopher A. Pissarides, 1995. "Technological Progress," CEP Discussion Papers dp0264, Centre for Economic Performance, LSE.
  7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  8. Bertola, Giuseppe, 1994. "Flexibility, investment, and growth," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 215-238, October.
  9. Cohen, Daniel & Saint-Paul, Gilles, 1994. "Uneven technical process and job destructions," CEPREMAP Working Papers (Couverture Orange) 9412, CEPREMAP.
  10. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  11. Saint-Paul, Gilles, 1996. "Unemployment and increasing private returns to human capital," Journal of Public Economics, Elsevier, vol. 61(1), pages 1-20, July.
  12. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
  13. Aghion, Philippe & Howitt, Peter, 1996. "Research and Development in the Growth Process," Journal of Economic Growth, Springer, vol. 1(1), pages 49-73, March.
  14. C Bean & Christopher A. Pissarides, 1992. "Unemployment, Consumption and Growth," CEP Discussion Papers dp0100, Centre for Economic Performance, LSE.
  15. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
  16. Aghion, Philippe & Howitt, Peter, 1991. "Growth and Unemployment," CEPR Discussion Papers 577, C.E.P.R. Discussion Papers.
  17. 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, vol. 41(3-5), pages 499-506, April.
  18. Boone, Jan, 2000. "Technological Progress, Downsizing and Unemployment," Economic Journal, Royal Economic Society, vol. 110(465), pages 581-600, July.
  19. Cahuc, P. & Michel, P., 1992. "Minimum Wage, Unemployment and Growth," Papiers d'Economie Mathématique et Applications 92.35, Université Panthéon-Sorbonne (Paris 1).
  20. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
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