Employment Protection Legislation, Multinational Firms and Innovation

48 Pages Posted: 18 Jan 2010

See all articles by Rachel Griffith

Rachel Griffith

Institute for Fiscal Studies (IFS); University of Manchester; Centre for Economic Policy Research (CEPR)

Gareth Macartney

Institute for Fiscal Studies (IFS)

Date Written: January 2010

Abstract

The theoretical effects of labour regulations such as employment protection legislation (EPL) on innovation is ambiguous, and empirical evidence has thus far been inconclusive. EPL increases job security and the greater enforceability of job contracts may increase worker investment in innovative activity. On the other hand EPL increases adjustment costs faced by firms, and this may lead to under-investment in activities that are likely to require adjustment, including technologically advanced innovation. In this paper we find empirical evidence that both effects are at work - multinational enterprises locate more innovative activity in countries with high EPL, however they locate more technologically advanced innovation in countries with low EPL.

Keywords: employment protection, Innovation, multinational firm location

JEL Classification: D21, F23, J24, O31

Suggested Citation

Griffith, Rachel and Macartney, Gareth, Employment Protection Legislation, Multinational Firms and Innovation (January 2010). CEPR Discussion Paper No. DP7628. Available at SSRN: https://ssrn.com/abstract=1536387

Rachel Griffith (Contact Author)

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London WC1E 7AE
United Kingdom
+44 20 7291 4800 (Phone)
+44 20 7323 4780 (Fax)

University of Manchester ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

HOME PAGE: http://www.ifs.org.uk/people/profile?id=37

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Gareth Macartney

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom
+44 20 7291 4800 (Phone)

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