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Employment protection legislation, multinational firms and innovation

Author

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  • Rachel Griffith

    (Institute for Fiscal Studies and University of Manchester)

  • Gareth Macartney

    (Institute for Fiscal Studies and University College London)

Abstract

The theoretical effects of labour regulations such as employment protection legislation (EPL) on innovation is ambiguous, and empirical evidence has thus far been inconclusive. EPL increases job security and the greater enforceability of job contracts may increase worker investment in innovative activity. On the other hand EPL increases adjustment costs faced by firms, and this may lead to under-investment in activities that are likely to require adjustment, including technologically advanced innovation. In this paper we find empirical evidence that both effects are at work - multinational enterprises locate more innovative activity in countries with high EPL, however they locate more technologically advanced innovation in countries with low EPL. This research is forthcoming in the Review of Economics and Statistics.

Suggested Citation

  • Rachel Griffith & Gareth Macartney, 2010. "Employment protection legislation, multinational firms and innovation," IFS Working Papers W10/01, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:10/01
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    More about this item

    Keywords

    Innovation; employment protection; multinational firm location;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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