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faculty: "FEB" and publication year: "2010"
| Authors | E.J. Bartelsman, P.A. Gautier, J. de Wind | | Title | Employment protection, technology choice, and worker allocation |
| Publisher | IZA |
| Place | Bonn |
| Year | 2010 |
| Pages | 45 |
| Title series | IZA discussion paper |
| Series number | 4895 |
| Faculty | Faculty of Economics and Business |
| Institute/dept. | FEB: Research Institute in Economics and Econometrics Amsterdam (RESAM) |
| Abstract | Using a country-industry panel dataset (EUKLEMS) we uncover a robust empirical regularity, namely that high-risk innovative sectors are relatively smaller in countries with strict employment protection legislation (EPL). To understand the mechanism, we develop a two-sector matching model where firms endogenously choose between a safe technology with known productivity and a risky technology with productivity subject to sizeable shocks. Strict EPL makes the risky technology relatively less attractive because it is more costly to shed workers upon receiving a low productivity draw. We calibrate the model using a variety of aggregate, industry and micro-level data sources. We then simulate the model to reflect both the observed differences across countries in EPL and the observed increase since the mid-1990s in the variance of firm performance associated with the adoption of information and communication technology. The simulations produce a differential response to the arrival of risky technology between low- and high-EPL countries that coincides with the findings in the data. The described mechanism can explain a considerable portion of the slowdown in productivity in the EU relative to the US since 1995. |
| Document type | Report |
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