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Employment Protection Legislation, Multinational Firms, and Innovation

Rachel Griffith¹; Gareth Macartney²

¹ Institute for Fiscal Studies and University of Manchester · ² Institute for Fiscal Studies

Abstract The theoretical effects of labor regulations, such as employment protection legislation (EPL), on innovation is ambiguous. EPL increases job security, and the greater enforceability of job contracts may increase worker investment in innovative activity. But EPL increases firms' adjustment costs, which may lead to underinvestment in activities that are likely to require adjustment, including technologically advanced innovation. In this paper, we find empirical evidence that these effects are at work—in particular, a higher share of multinational enterprise innovative activity in countries with high EPL is technologically advanced.

DOI

10.1162/rest_a_00348

Volume

96 (1)

Pages

135-150

Language

en

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BibTeX

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