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Employment Protection, Technology Choice, and Worker Allocation

Eric Bartelsman (), Pieter Gautier () and Joris de Wind

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: We show empirically that high-risk innovative sectors are relatively small in countries with strict employment protection legislation (EPL). To understand the mechanism, we develop a two-sector matching model where firms endogenously choose between safe and risky technology. Simulations with our calibrated model are consistent with the data: Strict EPL discourages choosing the emerging risky technology because it is more costly to shed workers upon receiving a bad productivity draw. This mechanism helps explain the lowdown in productivity in the EU relative to the US since the mid-1990s that often is associated with lagging adoption of information technology in the EU.

Keywords: employment protection legislation; exit costs; information and communication technologies; heterogeneous productivity; risky technology; innovation; sectoral allocation (search for similar items in EconPapers)
JEL-codes: J65 O38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2011-05
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

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Related works:
Journal Article: EMPLOYMENT PROTECTION, TECHNOLOGY CHOICE, AND WORKER ALLOCATION (2016) Downloads
Working Paper: Employment Protection, Technology Choice, and Worker Allocation (2010) Downloads
Working Paper: Employment Protection, Technology Choice, and Worker Allocation (2010) Downloads
Working Paper: Employment Protection, Technology Choice, and Worker Allocation (2010) Downloads
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