Employee Representation Legislations and Innovation: Evidence from Manufacturing Sectors

49 Pages Posted: 7 Mar 2016 Last revised: 17 Sep 2016

Filippo Belloc

University of Chieti-Pescara - Department of Economic Studies

Date Written: March 2, 2016

Abstract

We analyse how sectoral innovation outcomes are affected by national legislations of worker participation to corporate governance. We develop a model of employee representation laws (ERL) and innovation in the presence of incomplete labour contracts and predict heterogeneous ERL effects across different systems of dismissal regulation. We then perform a panel regression analysis, exploiting panel data for five countries over the 1977-2005 period and 21 two-digit manufacturing sectors. We find that ERL effects on aggregate innovation output are positive, statistically significant and higher in magnitude where national labour laws impose significant firing costs to the firm with respect to institutional settings in which firing costs are low or absent. These results are robust to possible technology selection dynamics, endogeneity and institutional changes in the legal system of patent protection. We also estimate ERL effects on innovation conditional on firing costs at an industry level and show that the impact of ERL is relatively larger in those sectors where the human capital contribution to production is higher. Our results have relevant implications for the optimal design of employee representation legislations.

Keywords: Employee Representation Law, Hold-up, Innovation, Panel Data

JEL Classification: K31, O31, P51

Suggested Citation

Belloc, Filippo, Employee Representation Legislations and Innovation: Evidence from Manufacturing Sectors (March 2, 2016). FEEM Working Paper No. 004.2016. Available at SSRN: https://ssrn.com/abstract=2740996

Filippo Belloc (Contact Author)

University of Chieti-Pescara - Department of Economic Studies ( email )

Viale Pindaro 42
Pescara, Pescara 65127 - I
Italy

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