Collective Dismissal Cost, Product Market Competition and Innovation

Arbeitspapier

Collective dismissal costs are an important part of employment protection legislation (EPL) and make firms' exit more costly. We show in a model with step-by-step innovations that dismissal costs spur innovation if product markets are not too competitive: technologically more advanced firms endogenously exit with smaller probability so that there is a dynamic incentive to innovate. But dismissal costs decrease the absolute value of firms and induce exit. These opposite effects and their dependence on the policy mix of EPL and product market regulation explain why empirical studies have difficulties to find a negative effect of EPL on innovation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 888

Classification and Topics

• Classification: Wirtschaft ; Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices ; Unemployment Insurance; Severance Pay; Plant Closings ; Innovation and Invention: Processes and Incentives
• Subject: step-by-step innovations ; employment protection legislation ; exit cost ; Schumpeterian growth ; Kündigungsschutz ; Kosten ; Monopolistischer Wettbewerb ; Innovationswettbewerb ; Marktaustritt ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Koeniger, Winfried
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/20127
• Last update: 10.03.2025, 11:42 AM CET