Employment Protection and the Rate of Technical Change
Posted: 19 Aug 2005
Date Written: February 2005
Abstract
Information and communications technology (ICT) is more common in some countries than in others. I find evidence that suggests that institutional firing costs may be a factor contributing to this divide, and develop an industry model to account for this finding.
In the model, as the technology in use at a given plant drops behind the best practice, it optimally reduces its workforce. This implies that firing costs are most harmful to profits in industries in which the rate of technical change is rapid - such as ICT. The paper suggests that industry composition may be a new channel through which regulation in general and labor market policy in particular might impact macroeconomic aggregates.
Keywords: Employment protection, rate of technical change, information and communications technology, digital divide, industry composition
JEL Classification: J32, J65, L16, L63, O33, O38
Suggested Citation: Suggested Citation