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Employment Protection Legislation Impacts on Capital and Skills Composition

Author

Listed:
  • Gilbert Cette

    (Centre de recherche de la Banque de France - Banque de France, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Jimmy Lopez

    (LEDi - Laboratoire d'Economie de Dijon - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique)

  • Jacques Mairesse

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

Abstract

The article investigates the effects of Employment Protection Legislation (EPL) on capital and skills according to the intensity of international competition. Grounded on a panel data sample for 14 OECD countries and 18 industries from 1988 to 2007, and a difference-in-difference approach, we find that strengthening EPL: (i) leads to a capital-labour substitution in favour of non ICT non R&D capital to the detriment of employment, this effect being mitigated in industries highly exposed to international competition; (ii) lowers ICT capital and, even more severely, R&D capital relatively to other capital components; and (iii) works at the relative disadvantage of low-skilled workers. Strengthening EPL can therefore be an impediment to organizational and so technological change and risk taking on globalized markets. An illustrative simulation suggests that structural reforms weakening EPL could have a significant favorable impact on firms' ICT and R&D investment and on hiring low-skilled workers.

Suggested Citation

  • Gilbert Cette & Jimmy Lopez & Jacques Mairesse, 2018. "Employment Protection Legislation Impacts on Capital and Skills Composition," Post-Print hal-01981426, HAL.
    • Handle: RePEc:hal:journl:hal-01981426
    DOI: 10.24187/ecostat.2018.503d.1960
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    References listed on IDEAS

    as
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    2. Calcagnini, Giorgio & Giombini, Germana & Travaglini, Giuseppe, 2019. "A theoretical model of imperfect markets and investment," Structural Change and Economic Dynamics, Elsevier, vol. 50(C), pages 237-244.

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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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