Berdugo, Binyamin and 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.
Download (208kB) | Preview
This paper analyzes the implication of employment protection legislation on a firm's screening process. We present a model in which human-capital-intensive firms (high-tech) with imperfect information about their workers' type attempt during a trial period to identify those incompetent workers who they will subsequently dismiss. Employment protection measures, however, place a burden on this screening process and thereby motivate innovators to embark on medium-tech projects which are more flexible in their human capital requirements. Employment protection legislation thereby distorts the pattern of specialization in favor of medium-tech firms rather than high-tech firms and consequently slows down the process of economic growth. The results of the paper are consistent with documented data on Europe versus US productivity growth and specialization patterns as well as with employment protection legislation in those economies.
|Item Type:||MPRA Paper|
|Original Title:||How Do Firing Costs Affect Innovation and Growth when Workers' Ability is Unknown? – Employment Protection as a Burden on a Firm's Screening Process|
|English Title:||How Do Firing Costs Affect Innovation and Growth when Workers' Ability is Unknown? – Employment Protection as a Burden on a Firm's Screening Process|
|Keywords:||Screening, Firing Costs, Employment Protection, Innovation, Growth, Specialization|
|Subjects:||J - Labor and Demographic Economics > J0 - General > J08 - Labor Economics Policies
O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design
D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity
|Date Deposited:||08. Nov 2008 15:50|
|Last Modified:||27. Aug 2015 12:19|
Acemoglu, D and J.A. Robinson "Why Did the West Extend the Franchise? Democracy, Inequality, and Growth in Historical Perspective" The Quarterly Journal of Economics, 115, (2000), pp. 1167-1199.
Acemoglu D.and J.A. Robinson, "The Colonial Origins of Comparative Development: An Empirical Investigation" The American Economic Review, 91, (2001), pp. 1369-1401.
Acemoglu D, J.A. Robinson "Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution" The Quarterly Journal of Economics, 117, (2002) pp. 1231-1294.
Acemoglu D and F. Zilibotti "Productivity Differences" The Quarterly Journal of Economics, 116, (2001), pp. 563-606.
Aghion, P. and P. Howitt, "A Model of Growth through Creative Destruction", Econometrica 60 (1992) pp. 323-51.
Alesina, A. and J. Zeira, "Technology and Labor Regulations", HIER Discussion Paper No 2123, (2006) Harvard Institute of Economic Research, Harvard University.
Atkinson A.B. and J.E. Stiglitz "A New View of Technological Change" The Economic Journal, 79, (1969), pp. 573-578.
Basu S and D.N. Weil, "Appropriate Technology and Growth" The Quarterly Journal of Economics, 113, (1998), pp. 1025-1054.
Bentolila, S. and G. Bertola, "Firing costs and labor demand: how bad is eurosclerosis?" Review of Economic Studies 57, (1990) pp. 381-402.
Bertola, G. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?" Review of Economic Studies, 57, (1990) 381-402.
Bertola, G "Labor Turnover Costs and Average Labor Demand", Journal of Labor Economics, 10 (1992), pp. 389-411.
Galor O, Moav O and D. Vollrath, "Inequality in Land Ownership, the Emergence of Human Capital promoting institutions, and the great divergence", Review of Economic Studies(2008) forthcoming.
Galor O and A. Mountford "Trading Population for Productivity: Theory and Evidence", Review of economic Studies (2008) forthcoming.
Grossman G.M. and E. Helpman, "Quality Ladders in the Theory of Growth" The Review of Economic Studies, 58, (1991), pp. 43-61.
Grossman, G.M and E. Helpman, "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, 106, (1991) 557-86.
Gust ,C. and J. Marquez "International comparisons of productivity growth: the role of information technology and regulatory practices", Labour Economics, 11, (2004), pp 33-58.
Hopenhayn, H. and R. Rogerson, "Job Turnover and Policy Evaluation: A General Equilibrium Analysis", Journal of Political Economy 101(1993), pp. 915-938.
Kugler D. A and G. Saint-Paul "How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?" Journal of Labor Economics, 22 (2004) pp. 553-584.
Parente, S.L and E.C Prescott, "Barriers to Technology Adoption and Development" Journal of Political Economy, 102. (1994) pp. 298-321.
Saint-Paul, G. "Is labour rigidity harming Europe's competitiveness? The effect of job protection on the pattern of trade and welfare", European Economic Review 41 (1997), pp. 499-506.
Saint-Paul, G., "Employment protection, international specialization, and innovation", European Economic Review 46, (2002), pp. 375-395.
OECD (2003), "ICT and Economic Growth- evidence from OECD countries industries and firms".
Joseph Zeira "Workers, Machines, and Economic Growth" The Quarterly Journal of Economics, 113, (1998), pp. 1091-1117.