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Is Labour Market Flexibility Harmful to Innovation?

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  • Kleinknecht, Alfred

Abstract

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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