Labor Laws and Innovation

Acharya, V V and Baghai, R P and Subramanian, K (2013) Labor Laws and Innovation. The Journal of Law and Economics, 56 (4). pp. 997-1037.

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Abstract

AbstractWhen contracts are incomplete, dismissal laws prevent employers from arbitrarily discharging employees and thereby limit employers’ ability to hold up innovating employees after an innovation is successful. Therefore, dismissal laws can enhance employees’ innovative efforts and encourage firms to invest in risky but potentially groundbreaking projects. Other forms of labor laws that do not affect dismissal of employees do not have this bright side. We find support for these predictions in empirical tests that exploit country-level changes in dismissal laws in the United States, the United Kingdom, France, and Germany: more stringent dismissal laws foster innovation, particularly in innovation-intensive industries, but other labor laws do not.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Subramanian, KUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: Employment termination, Labor law, Business innovation, Patents, Citation indexes, Case dismissal, Law firms, Gross domestic product, Rule of law
Subjects: Finance
Policy
Depositing User: Ilayaraja M
Date Deposited: 08 Jun 2019 14:09
Last Modified: 09 Jun 2019 19:11
URI: http://eprints.exchange.isb.edu/id/eprint/1034
Publisher URL: https://doi.org/10.1086/674106
Publisher OA policy: http://sherpa.ac.uk/romeo/issn/0022-2186/
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