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Is Labour Market Flexibility Harmful to Innovation?


  • Kleinknecht, Alfred


In a neoclassical framework, one can argue that unemployment can be reduced by means of institutional changes that allow for a better working of the labor market and, notably, by achieving downward wage flexibility. The author argues that, although various policy recommendations about removing labor-market rigidities are indeed advantageous in the short run, they are detrimental from a Schumpeterian perspective since they discourage product and process innovation. Reduced innovation efforts will in turn weaken the supply-side strength of an economy. The paper explores the implications of Schumpeter's notion of creative destruction and of Schmookler's hypothesis of demand-pulled innovations, borrowing from recent empirical innovation research. Copyright 1998 by Oxford University Press.

Suggested Citation

  • Kleinknecht, Alfred, 1998. "Is Labour Market Flexibility Harmful to Innovation?," Cambridge Journal of Economics, Oxford University Press, vol. 22(3), pages 387-396, May.
  • Handle: RePEc:oup:cambje:v:22:y:1998:i:3:p:387-96

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    References listed on IDEAS

    1. Silverberg, Gerald & Lehnert, Doris, 1993. "Long waves and 'evolutionary chaos' in a simple Schumpeterian model of embodied technical change," Structural Change and Economic Dynamics, Elsevier, vol. 4(1), pages 9-37, June.
    2. Crepon, Bruno & Duguet, Emmanuel, 1997. "Research and development, competition and innovation pseudo-maximum likelihood and simulated maximum likelihood methods applied to count data models with heterogeneity," Journal of Econometrics, Elsevier, vol. 79(2), pages 355-378, August.
    3. Robert J. Gordon, 2000. "Does the "New Economy" Measure Up to the Great Inventions of the Past?," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 49-74, Fall.
    4. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-938, July.
    5. Crepon, Bruno & Duguet, Emmanuel, 1997. "Estimating the Innovation Function from Patent Numbers: GMM on Count Panel Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(3), pages 243-263, May-June.
    6. Chris Freeman & Luc Soete, 1997. "The Economics of Industrial Innovation, 3rd Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262061953, January.
    7. Kleinknecht, Alfred, 1990. "Are There Schumpeterian Waves of Innovations?," Cambridge Journal of Economics, Oxford University Press, vol. 14(1), pages 81-92, March.
    8. Cincera, Michele, 1997. "Patents, R&D, and Technological Spillovers at the Firm Level: Some Evidence from Econometric Count Models for Panel Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(3), pages 265-280, May-June.
    9. Solomou, Solomos, 1986. "Innovation Clusters and Kondratieff Long Waves in Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 10(2), pages 101-112, June.
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