TY  - RPRT
        AU  - Bartelsman, Eric
AU  - Gautier, Pieter A.
AU  - Wind, Joris De
        TI  - Employment Protection, Technology Choice, and Worker Allocation
        PY  - 2010/Apr/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 4895
        UR  - https://www.iza.org/publications/dp4895
        AB  - Using a country-industry panel dataset (EUKLEMS) we uncover a robust empirical regularity, namely that high-risk innovative sectors are relatively smaller in countries with strict employment protection legislation (EPL). To understand the mechanism, we develop a two-sector matching model where firms endogenously choose between a safe technology with known productivity and a risky technology with productivity subject to sizeable shocks. Strict EPL makes the risky technology relatively less attractive because it is more costly to shed workers upon receiving a low productivity draw. We calibrate the model using a variety of aggregate, industry and micro-level data sources. We then simulate the model to reflect both the observed differences across countries in EPL and the observed increase since the mid-1990s in the variance of firm performance associated with the adoption of information and communication technology. The simulations produce a differential response to the arrival of risky technology between low- and high-EPL countries that coincides with the findings in the data. The described mechanism can explain a considerable portion of the slowdown in productivity in the EU relative to the US since 1995.
        KW  - information and communications technology
KW  - exit costs
KW  - employment protection legislation
KW  - heterogeneous productivity
KW  - sectoral allocation
        ER  -