IDEAS home Printed from https://ideas.repec.org/p/crs/wpaper/2017-57.html
   My bibliography  Save this paper

Employment protection legislation impacts on capital and skill composition

Author

Listed:
  • Cette Gilbert

    (Aix-Marseille School of Economics; CNRS; EHESS)

  • Lopez Jimmy

    (Banque de France ; Université de Bourgogne Franche-Comté (LEDi))

  • Mairesse Jacques

    (CREST-ENSAE ; Maastricht University (UNU-MERIT) ; Banque de France ; NBER)

Abstract

Research and Development (R&D) expenses and Information and Communication Technology (ICT) diffusion are key factors of modern growth and competitiveness. This study proposes an original investigation of the effects of the OECD Employment Protection Legislation (EPL) indicator on four capital and three labour skill components. Grounded on a country*industry unbalanced panel data sample for 14 OECD countries and 18 industries covering the years 1988 to 2007 and relying on a difference-in-difference econometric approach, we find that a change in EPL impacts differently the type and skill composition of respectively capital and labour. Strenthening EPL lowers ICT capital and, even more severily, R&D capital relatively to non-ICT and construction capital; it also works at the disadvantage of low-skill workers relatively to high-skill workers employment. These results confirm that a strenthening of EPL can be an impediment to the organizational change and a break to the risk taking so important to capture shares of globalized markets, thus driving to more regulation harmonization. An illustrative policy simulation based on our estimates suggests that structural reforms for more labour flexibility, weakening employment protection legislation for countries where it is particularly strong, could have a favourable impact on firms’ ICT and R&D investment and on the hiring of low-skill workers.

Suggested Citation

  • Cette Gilbert & Lopez Jimmy & Mairesse Jacques, 2017. "Employment protection legislation impacts on capital and skill composition," Working Papers 2017-57, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2017-57
    as

    Download full text from publisher

    File URL: http://crest.science/RePEc/wpstorage/2017-57.pdf
    File Function: CREST working paper version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Aghion, Philippe & Askenazy, Philippe & Bourlès, Renaud & Cette, Gilbert & Dromel, Nicolas, 2009. "Education, market rigidities and growth," Economics Letters, Elsevier, vol. 102(1), pages 62-65, January.
    2. Eric J. Bartelsman & Pieter A. Gautier & Joris Wind, 2016. "Employment Protection, Technology Choice, And Worker Allocation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 787-826, August.
    3. Viral V. Acharya & Ramin P. Baghai & Krishnamurthy V. Subramanian, 2013. "Labor Laws and Innovation," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 997-1037.
    4. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2016. "Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy," Economic Journal, Royal Economic Society, vol. 126(595), pages 1798-1822, September.
    5. Gilbert Cette & Jimmy Lopez & Jacques Mairesse, 2016. "Market Regulations, Prices, and Productivity," American Economic Review, American Economic Association, vol. 106(5), pages 104-108, May.
    6. Conti, Maurizio & Sulis, Giovanni, 2016. "Human capital, employment protection and growth in Europe," Journal of Comparative Economics, Elsevier, vol. 44(2), pages 213-230.
    7. Gilbert Cette & Jimmy Lopez & Jacques Mairesse, 2016. "Product and Labour Market Regulations, Production Prices, Wages and Productivity," Review of Economics and Institutions, Università di Perugia, vol. 7(2).
    8. Etienne Wasmer & Alexandre Janiak, 2014. "Employment protection and capital-labor ratios," Sciences Po Economics Discussion Papers 2014-11, Sciences Po Departement of Economics.
    9. Alexandre Janiak & Etienne Wasmer, 2014. "Employment protection and capital-labor ratios," Sciences Po publications 33, Sciences Po.
    10. P. Guerrieri & M. Luciani & V. Meliciani, 2011. "The determinants of investment in information and communication technologies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 20(4), pages 387-403.
    11. Rachel Griffith & Gareth Macartney, 2014. "Employment Protection Legislation, Multinational Firms, and Innovation," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 135-150, March.
    12. Gilbert Cette & Jimmy Lopez, 2012. "ICT demand behaviour: an international comparison," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(4), pages 397-410, June.
    13. repec:hrv:faseco:30752414 is not listed on IDEAS
    14. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    15. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Does Employment Protection Reduce Productivity? Evidence From US States," Economic Journal, Royal Economic Society, vol. 117(521), pages 189-217, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Calcagnini, Giorgio & Giombini, Germana & Travaglini, Giuseppe, 2019. "A theoretical model of imperfect markets and investment," Structural Change and Economic Dynamics, Elsevier, vol. 50(C), pages 237-244.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gilbert Cette & Jimmy Lopez & Jacques Mairesse, 2016. "Labour Market Regulations and Capital Intensity," NBER Working Papers 22603, National Bureau of Economic Research, Inc.
    2. Gilbert Cette & Jimmy Lopez & Jacques Mairesse, 2016. "Labour Market Regulations and Capital Intensity," NBER Working Papers 22603, National Bureau of Economic Research, Inc.
    3. Bratti, Massimiliano & Conti, Maurizio & Sulis, Giovanni, 2018. "Employment Protection, Temporary Contracts and Firm-Provided Training: Evidence from Italy," IZA Discussion Papers 11339, Institute of Labor Economics (IZA).
    4. García-Vega, María & Kneller, Richard & Stiebale, Joel, 2021. "Labor market reform and innovation: Evidence from Spain," Research Policy, Elsevier, vol. 50(5).
    5. Cette, Gilbert & Fernald, John & Mojon, Benoît, 2016. "The pre-Great Recession slowdown in productivity," European Economic Review, Elsevier, vol. 88(C), pages 3-20.
    6. Karpuz, Ahmet & Kim, Kirak & Ozkan, Neslihan, 2020. "Employment protection laws and corporate cash holdings," Journal of Banking & Finance, Elsevier, vol. 111(C).
    7. Conti, Maurizio & Sulis, Giovanni, 2016. "Human capital, employment protection and growth in Europe," Journal of Comparative Economics, Elsevier, vol. 44(2), pages 213-230.
    8. Belloc, Filippo, 2019. "Institutional complementarities between labour laws and innovation," Journal of Institutional Economics, Cambridge University Press, vol. 15(2), pages 235-258, April.
    9. Filippo Belloc, 2015. "Employee Representation Legislations and Innovation," Department of Economics University of Siena 719, Department of Economics, University of Siena.
    10. Filippo Belloc, 2015. "Employee Representation Legislations and Innovation," Department of Economics University of Siena 719, Department of Economics, University of Siena.
    11. Mr. Sebastian Weber & Mirko Abbritti, 2019. "Market Regulation, Cycles and Growth in a Monetary Union," IMF Working Papers 2019/123, International Monetary Fund.
    12. Gilbert Cette & Jimmy Lopez & Giorgio Presidente & Vincenzo Spiezia, 2019. "Measuring ‘indirect’ investments in ICT in OECD countries," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 28(4), pages 348-364, May.
    13. Cette, G. & Clerc, C. & Bresson, L., 2015. "Diffusion et contribution à la croissance des TIC aux États-Unis, dans la zone euro et au Royaume-Uni," Bulletin de la Banque de France, Banque de France, issue 200, pages 83-90.
    14. Bratti, Massimiliano & Conti, Maurizio & Sulis, Giovanni, 2019. "Employment Protection and Firm-Provided Training: Quasi-Experimental Evidence from a Labour Market Reform," IZA Discussion Papers 12773, Institute of Labor Economics (IZA).
    15. Gilbert Cette & Aurélien Devillard & Vincenzo Spiezia, 2020. "Growth factors in developed countries: A 1960-2019 growth accounting decomposition," Working Papers halshs-02958226, HAL.
    16. Bottasso, Anna & Conti, Maurizio & Sulis, Giovanni, 2017. "Firm dynamics and employment protection: Evidence from sectoral data," Labour Economics, Elsevier, vol. 48(C), pages 35-53.
    17. Philippe Aghion & Antonin Bergeaud & John Van Reenen, 2021. "The Impact of Regulation on Innovation," NBER Working Papers 28381, National Bureau of Economic Research, Inc.
    18. Gilbert CETTE, 2015. "Which Role for ICTs as a Productivity Driver Over the Last Years and the Next Future?," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(100), pages 65-83, 4th quart.
    19. Bratti, Massimiliano & Conti, Maurizio & Sulis, Giovanni, 2021. "Employment protection and firm-provided training in dual labour markets," Labour Economics, Elsevier, vol. 69(C).
    20. Cette, G. & Clerc, C. & Bresson, L., 2016. "Contribution of information and communication technologies (ICT) to growth," Rue de la Banque, Banque de France, issue 22, April..

    More about this item

    Keywords

    regulation; capital; R&D; ICT; skill;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:crs:wpaper:2017-57. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/crestfr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Secretariat General (email available below). General contact details of provider: https://edirc.repec.org/data/crestfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.