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Institutional Complementarities Between Labour Laws and Innovation

Filippo Belloc () and Centre for Business Research

Working Papers from Centre for Business Research, University of Cambridge

Abstract: We analyse how institutional complementarities between employee representation laws and dismissal restrictions influence aggregate innovation outcomes. We argue that greater employee voice, due to improved employee representation legislations, may spur innovative effort by employees only when shareholders cannot renegotiate ex-ante agreements with workers over revenue sharing, by threatening dismissal. We perform a panel regression analysis, exploiting country-sector panel data over the 1977-2005 period, and find that stronger employee representation laws in the presence of stricter firing restrictions are in fact associated with higher patenting activity. Consistently with our theoretical argument, the magnitude of this empirical relationship is seen to be relatively larger in those sectors where the human capital contribution to production is higher. Implications for the analysis of economic institutions and for legal policy-making are proposed.

Keywords: labour laws; institutional complementarities; hold-up; innovation (search for similar items in EconPapers)
JEL-codes: K31 O31 P51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law
Date: 2018-06
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