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Employment Protection, International Specialization, and Innovation

  • Saint-Paul, G.

This paper develops a model to analyse the implications of firing costs on incentives for R&D and international specialization. The key idea is that, to avoid paying firing costs, the country with a rigid labour market will tend to produce relatively secure goods, at late stages in their product life cycles. With international trade, an international product cycle emerges where, roughly, new goods are first produced in the low-firing cost country, and then move to the high-firing cost country. The paper shows that in the closed economy, an increase in firing costs does not necessarily imply a reduction in R&D; it crucially depends on the riskiness of R&D activity relative to productive activity. In the open economy, however, an increase in firing costs is much more likely to reduce R&D intensity.

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Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 95-31.

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Length: 21 pages
Date of creation: 1995
Date of revision:
Publication status: Published in European Economic Review, 2002, vol. 46, no. 2, pp. 375-395
Handle: RePEc:del:abcdef:95-31
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  1. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
  2. Saint-Paul, G., 1992. "Are the Unemployed Unemployable," DELTA Working Papers 92-04, DELTA (Ecole normale supérieure).
  3. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Cohen, Daniel & Saint-Paul, Gilles, 1994. "Uneven Technical Progress and Job Destructions," CEPR Discussion Papers 979, C.E.P.R. Discussion Papers.
  5. Steve J. Davis & John Haltiwanger, 1991. "Gross Job Creation, Gross Job Destruction and Employment Reallocation," NBER Working Papers 3728, National Bureau of Economic Research, Inc.
  6. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  7. Bertola, Giuseppe, 1994. "Flexibility, investment, and growth," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 215-238, October.
  8. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  9. Dale T. Mortensen & Christopher A. Pissarides, 1995. "Technological Progress," CEP Discussion Papers dp0264, Centre for Economic Performance, LSE.
  10. Saint-Paul, G., 1995. "Is Labour Rigidity Harming Europe's Competitiveness? The Effect of Job Protection on the Pattern of Trade and Welfare," DELTA Working Papers 95-38, DELTA (Ecole normale supérieure).
  11. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  12. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  13. Aghion, Philippe & Howitt, Peter, 1996. "Research and Development in the Growth Process," Journal of Economic Growth, Springer, vol. 1(1), pages 49-73, March.
  14. Saint-Paul, Gilles, 1996. "Unemployment and increasing private returns to human capital," Journal of Public Economics, Elsevier, vol. 61(1), pages 1-20, July.
  15. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 671-698.
  16. Cahuc, Pierre & Michel, Philippe, 1996. "Minimum wage unemployment and growth," European Economic Review, Elsevier, vol. 40(7), pages 1463-1482, August.
  17. Aghion, Philippe & Howitt, Peter, 1991. "Growth and Unemployment," CEPR Discussion Papers 577, C.E.P.R. Discussion Papers.
  18. Saint-Paul, Gilles, 1994. "Unemployment, wage rigidity, and the returns to education," European Economic Review, Elsevier, vol. 38(3-4), pages 535-543, April.
  19. Boone, Jan, 2000. "Technological Progress, Downsizing and Unemployment," Economic Journal, Royal Economic Society, vol. 110(465), pages 581-600, July.
  20. C Bean & Christopher A. Pissarides, 1992. "Unemployment, Consumption and Growth," CEP Discussion Papers dp0100, Centre for Economic Performance, LSE.
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