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Technology and Labor Regulations

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Author Info
Alberto Alesina
Joseph Zeira

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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 change in the US is more skill biased than in Europe, since American skilled wages are higher. In the last few years some partial labor market reforms in Europe may have started to slow down or even reverse this trend.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12581.

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Date of creation: Oct 2006
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Handle: RePEc:nbr:nberwo:12581

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O3 - Economic Development, Technological Change, and Growth - - Technological Change
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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References listed on IDEAS
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    Other versions:
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Amin, Mohammad, 2007. "Are labor regulations driving computer usage in India's retail stores ?," Policy Research Working Paper Series 4274, The World Bank. [Downloadable!]
    Other versions:
  2. Berdugo, Binyamin & Hadad, Sharon, 2008. "How Do Firing Costs Affect Innovation and Growth when Workers' Ability is Unknown? – Employment Protection as a Burden on a Firm's Screening Process," MPRA Paper 11410, University Library of Munich, Germany. [Downloadable!]
  3. Barrios, Salvador & Burgelman, Jean-Claude, 2007. "Information and Communication Technologies, Market Rigidities and Growth: Implications for EU Policies," MPRA Paper 5838, University Library of Munich, Germany. [Downloadable!]
  4. Correa, Paulo G. & Fernandes, Ana M. & Uregian, Chris J., 2008. "Technology adoption and the investment climate : firm-level evidence for Eastern Europe and Central Asia," Policy Research Working Paper Series 4707, The World Bank. [Downloadable!]
  5. Acemoglu, Daron, 2009. "When Does Labor Scarcity Encourage Innovation?," CEPR Discussion Papers 7247, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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