Firing Costs and the Decoupling of Technological Invention and Post-Invention Investments

64 Pages Posted: 23 Mar 2021

See all articles by Daniel Keum

Daniel Keum

Columbia University - Columbia Business School

Date Written: October 1, 2020

Abstract

We document the decoupling of invention and post-invention investment in the US. Decoupling began in the 1970s as states adopted employment protection laws that increased firing costs and played a significant role in jobless growth, the vertical and geographical fragmentation of firm activities, and underinvestment relative to Tobin’s Q. Technological inventions lead to employment growth, but employment protection laws almost fully moderate this positive effect, especially in fast-changing and high-offshore industries and for radical inventions. Firms responded to the increased firing costs by pursuing less-novel inventions, factor substitution toward capital, and offshoring through international acquisitions and JVs with manufacturing partners. Our findings suggest that decoupling serves as a critical context under which these drivers of jobless growth emerged in the 1990s and that firms aggressively manage complementary in upstream-downstream resources by adjusting geographical and vertical boundaries of the firm.

Keywords: invention, firm growth, employment, acquisition, joint ventures

JEL Classification: E22, E24, G38, O32

Suggested Citation

Keum, Daniel, Firing Costs and the Decoupling of Technological Invention and Post-Invention Investments (October 1, 2020). Columbia Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3774703 or http://dx.doi.org/10.2139/ssrn.3774703

Daniel Keum (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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