Employment protection legislation impacts on capital and skill composition

Gilbert Cette, Jimmy Lopez () and Jacques Mairesse

No 2017-57, Working Papers from Center for Research in Economics and Statistics

Abstract: Research and Development (R&D) expenses and Information and Communication Technology (ICT) diffusion are key factors of modern growth and competitiveness. This study proposes an original investigation of the effects of the OECD Employment Protection Legislation (EPL) indicator on four capital and three labour skill components. Grounded on a country*industry unbalanced panel data sample for 14 OECD countries and 18 industries covering the years 1988 to 2007 and relying on a difference-in-difference econometric approach, we find that a change in EPL impacts differently the type and skill composition of respectively capital and labour. Strenthening EPL lowers ICT capital and, even more severily, R&D capital relatively to non-ICT and construction capital; it also works at the disadvantage of low-skill workers relatively to high-skill workers employment. These results confirm that a strenthening of EPL can be an impediment to the organizational change and a break to the risk taking so important to capture shares of globalized markets, thus driving to more regulation harmonization. An illustrative policy simulation based on our estimates suggests that structural reforms for more labour flexibility, weakening employment protection legislation for countries where it is particularly strong, could have a favourable impact on firms’ ICT and R&D investment and on the hiring of low-skill workers.

Keywords: regulation; capital; R&D; ICT; skill (search for similar items in EconPapers)
JEL-codes: C23 E22 E24 L50 O30 O43 O47 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2017-12-31
New Economics Papers: this item is included in nep-mac and nep-tid
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Related works:
Journal Article: Employment Protection Legislation Impacts on Capital and Skills Composition (2018)
Working Paper: Employment Protection Legislation Impacts on Capital and Skills Composition (2018)
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