Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/108822
Authors: 
Bastgen, Andreas
Holzner, Christian
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5275
Abstract: 
We study the effects of employment protection taking into account that firms can invest in R&D or buy new technologies in order to restore their productivity. To do so we develop an equilibrium matching model with an imperfect labor and innovation market. If employment protection is introduced, firms' willingness to pay for product or process innovations increases. This shifts economic activity towards firms specializing in process and product innovation and triggers entry of new start-ups. We calibrate our model to match aggregate US labor and product market statistics and show that our model generates the estimated negative impact of wrongful dismissal laws in the US on productivity and the positive effect on the number of innovations and firms.
Subjects: 
employment protection
firing costs
innovations
patents
productivity
market imperfections
JEL: 
J64
J65
O31
O38
Document Type: 
Working Paper

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