Employment protection, technology choice, and worker allocation
Using a country-industry panel dataset (EUKLEMS) we uncover a robust empirical regularity, namely that high-risk innovative sectors are relatively smaller in countries with strict employment protection legislation (EPL). To understand the mechanism, we develop a two-sector matching model where firms endogenously choose between a safe technology with known productivity and a risky technology with productivity subject to sizeable shocks. Strict EPL makes the risky technology relatively less attractive because it is more costly to shed workers upon receiving a low productivity draw. We calibrate the model using a variety of aggregate, industry and micro-level data sources. We then simulate the model to reflect both the observed differences across countries in EPL and the observed increase since the mid-1990s in the variance of firm performance associated with the adoption of information and communication technology. The simulations produce a differential response to the arrival of risky technology between low- and high-EPL countries that coincides with the findings in the data. The described mechanism can explain a considerable portion of the slowdown in productivity in the EU relative to the US since 1995.
Year of publication: |
2010
|
---|---|
Authors: | Bartelsman, E.J. ; Gautier, P.A. ; Wind, J. de |
Publisher: |
IZA |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Employment protection, technology choice, and worker allocation
Bartelsman, E.J., (2010)
-
Employment protection, technology choice, and worker allocation
Bartelsman, E.J., (2010)
-
Short and Long Run Externalities.
Bartelsman, E.J., (1991)
- More ...