Labor Laws and Innovation

Viral Acharya, Ramin P. Baghai and Krishnamurthy Subramanian

No 16484, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Stringent labor laws can provide firms a commitment device to not punish short-run failures and thereby spur their employees to pursue value-enhancing innovative activities. Using patents and citations as proxies for innovation, we identify this effect by exploiting the time-series variation generated by staggered country-level changes in dismissal laws. We find that within a country, innovation and economic growth are fostered by stringent laws governing dismissal of employees, especially in the more innovation-intensive sectors. Firm-level tests within the United States that exploit a discontinuity generated by the passage of the federal Worker Adjustment and Retraining Notification Act confirm the cross-country evidence.

JEL-codes: F30 G31 J08 J5 K31 (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-bec, nep-ino, nep-ipr, nep-pr~, nep-lab and nep-mic
Note: CF IFM LE LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

Published as “Labor Laws and Innovation” with Ramin Baghai and Krishnamurthy Subramanian, Journal of Law and Economics , 2013, 56, 997-1037.

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Journal Article: Labor Laws and Innovation (2013)
Working Paper: Labor Laws and Innovation (2009)
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