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Employment protection legislation, multinational firms and innovation

Author

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  • Rachel Griffith

    () (Institute for Fiscal Studies and IFS and Manchester)

  • Gareth Macartney

    () (Institute for Fiscal Studies and University College London)

Abstract

The theoretical effects of labour regulations such as employment protection legislation (EPL) on innovation is ambiguous, and empirical evidence has thus far been inconclusive. EPL increases job security and the greater enforceability of job contracts may increase worker investment in innovative activity. On the other hand EPL increases adjustment costs faced by firms, and this may lead to under-investment in activities that are likely to require adjustment, including technologically advanced innovation. In this paper we find empirical evidence that both effects are at work - multinational enterprises locate more innovative activity in countries with high EPL, however they locate more technologically advanced innovation in countries with low EPL. This research is forthcoming in the Review of Economics and Statistics.

Suggested Citation

  • Rachel Griffith & Gareth Macartney, 2010. "Employment protection legislation, multinational firms and innovation," IFS Working Papers W10/01, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:10/01
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    References listed on IDEAS

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    1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, pages 701-728.
    2. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
    3. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 569-600.
    4. Carlin, Wendy & Mayer, Colin, 2003. "Finance, investment, and growth," Journal of Financial Economics, Elsevier, pages 191-226.
    5. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 225-254, April.
    6. Jan I. Haaland & Ian Wooton, 2007. "Domestic Labor Markets and Foreign Direct Investment," Review of International Economics, Wiley Blackwell, pages 462-480.
    7. Hall, Peter A. & Soskice, David (ed.), 2001. "Varieties of Capitalism: The Institutional Foundations of Comparative Advantage," OUP Catalogue, Oxford University Press, number 9780199247752.
    8. Karolina Ekholm & Katariina Hakkala, 2007. "Location of R&D and High-Tech Production by Vertically Integrated Multinationals," Economic Journal, Royal Economic Society, vol. 117(518), pages 512-543, March.
    9. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, pages 433-444.
    10. Akkermans, Dirk & Castaldi, Carolina & Los, Bart, 2009. "Do 'liberal market economies' really innovate more radically than 'coordinated market economies'?: Hall and Soskice reconsidered," Research Policy, Elsevier, pages 181-191.
    11. Richard Blundell & Rachel Griffith & John van Reenen, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 529-554.
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    Citations

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    Cited by:

    1. Filippo Belloc, 2015. "Employee Representation Legislations and Innovation," Department of Economics University of Siena 719, Department of Economics, University of Siena.
    2. Hottenrott, Hanna & Rexhäuser, Sascha & Veugelers, Reinhilde, 2016. "Organisational change and the productivity effects of green technology adoption," Resource and Energy Economics, Elsevier, vol. 43(C), pages 172-194.
    3. repec:era:wpaper:dp-2015-48 is not listed on IDEAS
    4. Murphy, Gavin & Siedschlag, Iulia & McQuinn, John, 2012. "Employment Protection and Innovation Intensity," Papers WP445, Economic and Social Research Institute (ESRI).
    5. Sophia Lee, 2013. "Examining policy configurations as conditions for long-term unemployment and non-standard employment in OECD countries using fuzzy-set analysis," Quality & Quantity: International Journal of Methodology, Springer, pages 3521-3536.
    6. Marie-Laure Cabon-Dhersin & Nicolas Drouhin, 2017. "A general model of price competition with soft capacity constraints," Working Papers halshs-01622930, HAL.
    7. Antonio Ciccone & Elias Papaioannou, 2016. "Estimating Cross-Industry Cross-Country Interaction Models Using Benchmark Industry Characteristics," NBER Working Papers 22368, National Bureau of Economic Research, Inc.
    8. Chiara Franco & Fabio Pieri & Francesco Venturini, 2016. "Product market regulation and innovation efficiency," Journal of Productivity Analysis, Springer, pages 299-315.
    9. Chiara Franco & Fabio Pieri & Francesco Venturini, 2016. "Product market regulation and innovation efficiency," Journal of Productivity Analysis, Springer, pages 299-315.
    10. Dan Andrews & Chiara Criscuolo, 2013. "Knowledge-Based Capital, Innovation and Resource Allocation," OECD Economics Department Working Papers 1046, OECD Publishing.

    More about this item

    Keywords

    Innovation; employment protection; multinational firm location;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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