Institutional Complementarities between Labour Laws and Innovation

Journal of Institutional Economics, 2019,15(2): 235-258.

23 Pages Posted: 9 May 2018 Last revised: 30 Jun 2020

See all articles by Filippo Belloc

Filippo Belloc

University of Siena - Department of Economics and Statistics

Date Written: April 24, 2018

Abstract

We analyse how institutional complementarities between employee representation laws and dismissal restrictions influence aggregate innovation outcomes. We argue that greater employee voice, due to improved employee representation legislations, may spur innovative effort by employees only when shareholders cannot renegotiate ex-ante agreements with workers over revenue sharing, by threatening dismissal. We perform a panel regression analysis, exploiting country-sector panel data over the 1977-2005 period, and find that stronger employee representation laws in the presence of stricter firing restrictions are in fact associated with higher patenting activity. Consistently with our theoretical argument, the magnitude of this empirical relationship is seen to be relatively larger in those sectors where the human capital contribution to production is higher. Implications for the analysis of economic institutions and for legal policy-making are proposed.

Keywords: labour laws, institutional complementarities, hold-up, innovation

JEL Classification: K31, O31, P51

Suggested Citation

Belloc, Filippo, Institutional Complementarities between Labour Laws and Innovation (April 24, 2018). Journal of Institutional Economics, 2019,15(2): 235-258., Available at SSRN: https://ssrn.com/abstract=3167935

Filippo Belloc (Contact Author)

University of Siena - Department of Economics and Statistics ( email )

Piazza San Francesco 7
Siena, Siena 53100
Italy

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