Employment protection legislation, multinational firms and innovation

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Employment Protection Legislation, Multinational Firms and Innovation Rachel Griffith and Gareth Macartney University College London and Institute for Fiscal Studies November 2009 AbstractThe 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. JEL codes: D21, F23, O31, J24

Similar, but still different: how US multinational companies in Germany and Switzerland use host‐country training and skill practices

“…In spite of the apparent similarity between the two country locations, we found US subsidiaries in Germany to be characterised by significantly more frequent core business changes, less ICT intensity and somewhat less of a price orientation than their counterparts in Switzerland. An implication of this finding is that there are indeed different employment relations comparative advantages in different country locations utilised by multinationals, which fits to study findings such as by Griffith and Macartney (2010). However, subsidiaries in Germany and Switzerland are also more similar-in terms of their long-term orientation-than expected, and the opposite as predicted in terms of how often core changes happen (more frequent core changes in the subsidiaries in Germany).…”

“…Also Harcourt and Wood identify employment protection to aid firm-specific skills (Harcourt and Wood, 2007: 151). Griffith and Macartney (2010), regarding within MNC data in 12 OECD countries, find empirical evidence that 'multinational enterprises locate more innovative activity in countries with high EPL [employment protection legislation], however they locate more technologically advanced innovation in countries with low EPL' (Griffith and Macartney, 2010: 1).…”

The effects of wrongful discharge protection on foreign multinationals: Evidence from transaction‐level data

“…To the best of our knowledge, we are the first to analyze the entire data series, exploiting the data on both transaction values and counts across all states, source countries and industries. 8 See for example, Görg (2002) and Gross and Ryan (2008), who find employment protection laws to be an important determinant of outward investment by US and Japanese multinationals, respectively; Javorcik and Spatareanu (2005) and Dewit et al (2009), who provide evidence that greater labour market flexibility in the host country is associated with larger FDI inflows to European countries and OECD countries, respectively; and Griffith and Macartney (2014), who find that, while multinational firms in countries with high levels of employment protection perform more overall innovation, such innovation is less radical compared to that in countries with low levels of employment protection. Autor et al (2006).…”

Employer‐employee profit‐sharing and the incentives to innovate when the dismissal regulation matters

“…While this paper mainly aims at shedding light on the possible positive and negative effects of employee financial participation mechanisms on innovative productions in regulated labour markets, it also contributes to a recent literature on employment protection and innovation (Acharya, Baghai, & Subramanian, 2013Belloc, in press;Griffith & Macartney, 2014). In particular, our result that employment protection laws may act as a substitute of commitment and restore the incentive-compatibility of shared-ownership, with a positive effect on innovation being larger in human capital intensive environments, provides a theoretical complement to the empirical findings of Acharya et al (2014), Griffith and Macartney (2014) and Belloc (in press). Acharya et al (2014) used U.S. data to show that wrongful discharge laws (i.e., laws that protect employees against unjust dismissal) spur patenting activity in high innovation-intensive industries, by limiting employers' ability to hold-up employees after the innovation is successful.…”

“…Acharya et al (2014) used U.S. data to show that wrongful discharge laws (i.e., laws that protect employees against unjust dismissal) spur patenting activity in high innovation-intensive industries, by limiting employers' ability to hold-up employees after the innovation is successful. Griffith and Macartney (2014) studied the patenting behaviour of a sample of multinational firms and found that the optimal level of investment in incremental innovation increases in countries with stronger layoff regulations. Belloc (in press) exploited cross-country variations of labour laws and found that stronger employee representation laws in the presence of stricter firing restrictions are associated with higher innovation rates, particularly in those sectors where the human capital contribution to production is higher.…”