This paper shows that different labor market policies can lead to differences in technology across sectors in a model … of labor saving technologies. Labor market regulations reduce the skill premium and as a result, if technologies are … labor saving, countries with more stringent labor regulation, which are binding for low skilled workers, become less …

, permanent unemployment subsidies, firing costs, etc. Such policies create incentives to develop and adopt labor saving capital … suggests that the main difference between Europe and the US in this respect is their different labor market policies. European … countries reduce wage flexibility and inequality through a host of labor market regulations, like binding minimum wage laws …