Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/20127
Authors: 
Koeniger, Winfried
Year of Publication: 
2003
Series/Report no.: 
IZA Discussion paper series 888
Abstract: 
Collective dismissal costs are an important part of employment protection legislation (EPL) and make firms' exit more costly. We show in a model with step-by-step innovations that dismissal costs spur innovation if product markets are not too competitive: technologically more advanced firms endogenously exit with smaller probability so that there is a dynamic incentive to innovate. But dismissal costs decrease the absolute value of firms and induce exit. These opposite effects and their dependence on the policy mix of EPL and product market regulation explain why empirical studies have difficulties to find a negative effect of EPL on innovation.
Subjects: 
step-by-step innovations
employment protection legislation
exit cost
Schumpeterian growth
JEL: 
L16
J65
O31
Document Type: 
Working Paper

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