Constraining Growth : Advance Layoff Notice and Corporate Innovation

The recent wave of tech sector layoffs has highlighted concerns about worker protection from abrupt job loss. This paper introduces a new quasi-natural experiment, the state Worker Adjustment and Retraining Notification Act, which reflects these concerns by mandating advance notice to displaced employees. We examine how exposure to the Act changes firms’ innovation activities, finding decreases in R&D expenditures, patent grants, and citations, especially among firms in industries less suited for automation and with longer-term planning horizons. Establishment-level evidence reinforces these findings, indicating slower employment growth, fewer establishment openings and acquisitions, and more small-(large-)establishment closures (divestitures). We conclude that worker protection from sudden displacement creates operational inflexibility that hinders innovation and growth