Employment protection, international specialization, and innovation

Gilles Saint-Paul

Research output: Contribution to journalArticle

Abstract

We develop a model to analyze the implications of firing costs on incentives for R&D and international specialization. The key idea is that countries with a rigid labor market will tend to produce relatively secure goods, at a late stage of their product life cycle. Consequently, their researchers tend to specialize in 'secondary innovation' which improves existing products, rather than 'primary innovation' which introduces new products. This is roughly consistent with the observed pattern of R&D in Europe versus the U.S. Employment protection does not necessarily harm the country where it prevails, but typically reduces world welfare and the world number of goods.

Original languageEnglish (US)
Pages (from-to)375-395
Number of pages21
JournalEuropean Economic Review
Volume46
Issue number2
DOIs
StatePublished - Feb 9 2002

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Keywords

  • Employment protection
  • Innovation
  • International product cycle
  • Labour market flexibility
  • R&D

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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