Employment Protection, International Specialization, and innovation

February 1, 1996

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Format: Chicago

Gilles Saint-Paul. Employment Protection, International Specialization, and innovation, (USA: International Monetary Fund, 1996) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We develop a model to analyze the implications of firing costs on incentives for R & D and international specialization. The key idea is that, to avoid paying firing costs, the country with a rigid labor market will tend to produce relatively secure goods, at a late stage of their product life cycle. Under international trade, an international product cycle emerges where, roughly, new goods are first produced in the low firing cost country and then move to the high firing cost country. We show that in the closed economy, an increase in firing costs does not necessarily imply a reduction in R & D; it crucially depends on the riskiness of R & D activity relative to production activity. In the open economy, however, an increase in firing cost is much more likely to reduce R & D intensity.

Subject: Economic sectors, Employment, Industrial sector, Labor, Labor force, Tax incentives, Wages

Keywords: Closed economy, Closed economy case, Costs matter, Employment, Europe, Firing cost, High-tech goods, Industrial sector, Labor force, Open economy, Wages, Western Europe, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/016
Stock No:

WPIEA0161996
ISBN:

9781451843354
ISSN:

1018-5941

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