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Employment Protection, Product Market Competition and Growth

  • Koeniger, Winfried

    ()

    (University of St. Gallen)

It is commonly argued that labor market institutions such as employment protection worsen an economy’s performance and particularly so, if product markets become more competitive. Empirical evidence, however, has difficulties to detect a robust negative correlation between employment protection and growth. We show in a model with step-by-step innovations that whether employment protection decreases incentives to innovate and thus productivity growth depends on the degree of product market competition. For reasonable parameter values product market deregulation fosters growth substantially more in the flexible than in the constrained economy.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 554.

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Length: 29 pages
Date of creation: Aug 2002
Date of revision:
Handle: RePEc:iza:izadps:dp554
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  1. Olivier Blanchard & Francesco Giavazzi, . "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Bertola, Giuseppe, 1990. "Flexibility, Investment and Growth," CEPR Discussion Papers 422, C.E.P.R. Discussion Papers.
  3. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  4. Gilles Saint-Paul, 2002. "The Political Economy of Employment Protection," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 672-701, June.
  5. Belot, M.V.K. & Boone, J. & van Ours, J.C., 2002. "Welfare Effects of Employment Protection," Discussion Paper 2002-48, Tilburg University, Center for Economic Research.
  6. Andrea Bassanini & Ekkehard Ernst, 2002. "Labour Market Institutions, Product Market Regulation, and Innovation: Cross-Country Evidence," OECD Economics Department Working Papers 316, OECD Publishing.
  7. Alvarez, Fernando & Veracierto, Marcelo, 2001. "Severance payments in an economy with frictions," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 477-498, June.
  8. Aghion, Philippe, et al, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 467-92, July.
  9. Bertola, Giuseppe, 1999. "Microeconomic perspectives on aggregate labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 45, pages 2985-3028 Elsevier.
  10. Boeri, Tito & Nicoletti, Giuseppe & Scarpetta, Stefano, 2000. "Regulation And Labour Market Performance," CEPR Discussion Papers 2420, C.E.P.R. Discussion Papers.
  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, Stephen, 1999. "Product markets and labour markets1," Labour Economics, Elsevier, vol. 6(1), pages 1-20, March.
  13. Harris, Christopher & Howitt, Peter & Vickers, John & Aghion, Philippe, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Scholarly Articles 12375013, Harvard University Department of Economics.
  14. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, vol. 41(3-5), pages 771-782, April.
  15. Saint-Paul, G., 1995. "Employment Protection, International Specialization, and Innovation," DELTA Working Papers 95-31, DELTA (Ecole normale supérieure).
  16. Levine, David I, 1991. "Just-Cause Employment Policies in the Presence of Worker Adverse Selection," Journal of Labor Economics, University of Chicago Press, vol. 9(3), pages 294-305, July.
  17. Giulio Fella, 2000. "Investment in General Training with Consensual Layoffs," Working Papers 418, Queen Mary University of London, School of Economics and Finance.
  18. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
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