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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
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    References listed on IDEAS

    as
    1. Andrea Bassanini & Luca Nunziata & Danielle Venn, 2009. "Job protection legislation and productivity growth in OECD countries," Economic Policy, CEPR;CES;MSH, vol. 24, pages 349-402, April.
    2. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2010. "The effects of employment protection legislation and financial market imperfections on investment: evidence from a firm-level panel of EU countries," Economic Policy, CEPR;CES;MSH, vol. 25, pages 117-163, January.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. Conti, Maurizio & Sulis, Giovanni, 2016. "Human capital, employment protection and growth in Europe," Journal of Comparative Economics, Elsevier, vol. 44(2), pages 213-230.
    9. 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).
    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.
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    More about this item

    Keywords

    regulation; capital; R&D; ICT; skill;

    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

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