Employment Protection, Technology Choice, and Worker Allocation

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 10-042/3

Classification and Topics

• Classification: Wirtschaft ; Unemployment Insurance; Severance Pay; Plant Closings ; Technological Change: Government Policy
• Subject: employment protection legislation ; exit costs ; Information and Communications Technology ; heterogeneous productivity ; sectoral allocation ; Arbeitnehmerschutz ; Technologiewahl ; Hochtechnologie ; Risiko ; Mehr-Sektoren-Modell ; Produktivität ; Informationstechnik ; Beschäftigungsstruktur ; Allokation ; Vergleich ; EU-Staaten ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bartelsman, Eric J. ; Gautier, Pieter A. ; de Wind, Joris
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/87089
• Last update: 10.03.2025, 11:42 AM CET