Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87089
Authors: 
Bartelsman, Eric J.
Gautier, Pieter A.
de Wind, Joris
Year of Publication: 
2010
Series/Report no.: 
Tinbergen Institute Discussion Paper 10-042/3
Abstract: 
Using a country-industry panel dataset (EUKLEMS) we uncover a robust empirical regularity, namely that high-risk innovative sectors are relatively smaller in countries with strict employment protection legislation (EPL). To understand the mechanism, we develop a two-sector matching model where firms endogenously choose between a safe technology with known productivity and a risky technology with productivity subject to sizeable shocks. Strict EPL makes the risky technology relatively less attractive because it is more costly to shed workers upon receiving a low productivity draw. We calibrate the model using a variety of aggregate, industry and micro-level data sources. We then simulate the model to reflect both the observed differences across countries in EPL and the observed increase since the mid-1990s in the variance of firm performance associated with the adoption of information and communication technology. The simulations produce a differential response to the arrival of risky technology between low- and high-EPL countries that coincides with the findings in the data. The described mechanism can explain a considerable portion of the slowdown in productivity in the EU relative to the US since 1995.
Subjects: 
employment protection legislation
exit costs
Information and Communications Technology
heterogeneous productivity
sectoral allocation
JEL: 
J65
O38
Document Type: 
Working Paper

Files in This Item:
File
Size
308.4 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.