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Technology and Labor Regulations

44 Pages Posted: 10 Oct 2006 Last revised: 22 Dec 2013

Alberto F. Alesina

Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Joseph Zeira

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); LUISS Guido Carli, DPTEA

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Date Written: October 2006

Abstract

Many low skilled jobs have been substituted away for machines in Europe, or eliminated, much more so than in the US, while technological progress at the "top," i.e., at the high-tech sector, is faster in the US than in Europe. This paper suggests that the main difference between Europe and the US in this respect is their different labor market policies. European countries reduce wage flexibility and inequality through a host of labor market regulations, like binding minimum wage laws, permanent unemployment subsidies, firing costs, etc. Such policies create incentives to develop and adopt labor saving capital intensive technologies at the low end of the skill distribution. At the same time technical progress in the US is more skill biased than in Europe, since American skilled wages are higher.

Suggested Citation

Alesina, Alberto F. and Zeira, Joseph, Technology and Labor Regulations (October 2006). Harvard Institute of Economic Research Discussion Paper No. 2123; Hudson Institute Research Paper No. 07-02. Available at SSRN: https://ssrn.com/abstract=936346 or http://dx.doi.org/10.2139/ssrn.936346

Alberto Alesina (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-8388 (Phone)
617-495-7730 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joseph Zeira

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem 91905, IL 91905
Israel
+972 2 588 3256 (Phone)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

LUISS Guido Carli, DPTEA ( email )

viale Pola 12
Roma, Roma 00198
Italy

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