Employment Protection, Technology Choice, and Worker Allocation

64 Pages Posted: 1 Nov 2011

See all articles by Eric J. Bartelsman

Eric J. Bartelsman

Vrije Universiteit Amsterdam; Tinbergen Institute; IZA Institute of Labor Economics

Pieter A. Gautier

Free University of Amsterdam; Tinbergen Institute Amsterdam (TIA); IZA Institute of Labor Economics

Joris de Wind

De Nederlandsche Bank

Multiple version iconThere are 5 versions of this paper

Date Written: May 1, 2011

Abstract

We show empirically that high-risk innovative sectors are relatively small in countries with strict employment protection legislation (EPL). To understand the mechanism, we develop a two-sector matching model where firms endogenously choose between safe and risky technology. Simulations with our calibrated model are consistent with the data: Strict EPL discourages choosing the emerging risky technology because it is more costly to shed workers upon receiving a bad productivity draw. This mechanism helps explain the lowdown in productivity in the EU relative to the US since the mid-1990s that often is associated with lagging adoption of information technology in the EU.

Keywords: employment protection legislation, exit costs, information and communication technologies, heterogeneous productivity, risky technology, innovation, sectoral allocation

JEL Classification: J65, O38

Suggested Citation

Bartelsman, Eric J. and Gautier, Pieter A. and de Wind, Joris, Employment Protection, Technology Choice, and Worker Allocation (May 1, 2011). De Nederlandsche Bank Working Paper No. 295, Available at SSRN: https://ssrn.com/abstract=1951839 or http://dx.doi.org/10.2139/ssrn.1951839

Eric J. Bartelsman (Contact Author)

Vrije Universiteit Amsterdam ( email )

Amsterdam, ND North Holland
Netherlands
+31 (0)20 44 46044 (Phone)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
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IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Pieter A. Gautier

Free University of Amsterdam ( email )

Amsterdam, ND North Holland
Netherlands

Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Joris de Wind

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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