Employment Protection, Product Market Competition and Growth
Journal
IZA Discussion Papers 554
Type
discussion paper
Date Issued
2002-08
Author(s)
Abstract
It is commonly argued that labor market institutions such as employment protection worsen an economy’s performance and particularly so, if product markets become more competitive. Empirical evidence, however, has difficulties to detect a robust negative correlation between employment protection and growth. We show in a model with step-by-step innovations that whether employment protection decreases incentives to innovate and thus productivity growth depends on the degree of product market competition. For reasonable parameter values product market deregulation fosters growth substantially more in the flexible than in the constrained economy.
Language
English
Keywords
step-by-step innovations
firing cost
Schumpeterian growth
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Economic Policy
Subject(s)
Eprints ID
261028