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Institutional Complementarities Between Labour Laws and Innovation

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  • Filippo Belloc
  • Centre for Business Research

Abstract

We analyse how institutional complementarities between employee representation laws and dismissal restrictions influence aggregate innovation outcomes. We argue that greater employee voice, due to improved employee representation legislations, may spur innovative effort by employees only when shareholders cannot renegotiate ex-ante agreements with workers over revenue sharing, by threatening dismissal. We perform a panel regression analysis, exploiting country-sector panel data over the 1977-2005 period, and find that stronger employee representation laws in the presence of stricter firing restrictions are in fact associated with higher patenting activity. Consistently with our theoretical argument, the magnitude of this empirical relationship is seen to be relatively larger in those sectors where the human capital contribution to production is higher. Implications for the analysis of economic institutions and for legal policy-making are proposed.

Suggested Citation

  • Filippo Belloc & Centre for Business Research, 2018. "Institutional Complementarities Between Labour Laws and Innovation," Working Papers wp506, Centre for Business Research, University of Cambridge.
  • Handle: RePEc:cbr:cbrwps:wp506
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Burdin, Gabriel & Pérotin, Virginie, 2019. "Employee representation and flexible working time," Labour Economics, Elsevier, vol. 61(C).
    2. Filippo Belloc, 2019. "Employer‐employee profit‐sharing and the incentives to innovate when the dismissal regulation matters," Metroeconomica, Wiley Blackwell, vol. 70(4), pages 641-654, November.
    3. Buyse, Tim & Heylen, Freddy & Schoonackers, Ruben, 2020. "On the impact of public policies and wage formation on business investment in research and development," Economic Modelling, Elsevier, vol. 88(C), pages 188-199.

    More about this item

    Keywords

    labour laws; institutional complementarities; hold-up; innovation;

    JEL classification:

    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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