Labor market reform and innovation: Evidence from Spain

María García-Vega, Richard Kneller and Joel Stiebale

No 355, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: We analyze the effect of a labor market reform on firms' product innovation. The re- form, which amounts to a natural experiment, differentially reduced firing costs for some firms, thereby lowering adjustment costs in the presence of demand uncertainty. Using a difference-in- differences framework, we show that the reform increased product innovations. We also provide evidence that the reform induced upgrading of product quality and enabled firms to grow faster and enter new markets. The effects are concentrated in industries with high levels of demand volatility and R&D intensity, where exible adjustments to unexpected shocks are important.

Keywords: Innovation; New products; Productivity; Labor market reform; EPL (search for similar items in EconPapers)
JEL-codes: D22 G31 J3 O31 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ino, nep-lma and nep-tid
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https://www.econstor.eu/bitstream/10419/226182/1/1738987965.pdf (application/pdf)

Related works:
Journal Article: Labor market reform and innovation: Evidence from Spain (2021)
Working Paper: Labour market reform and innovation: Evidence from Spain (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:355

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