Labor laws and innovation

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

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Abstract

When 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. © 2013 by The University of Chicago. All rights reserved.

ISB Creators:
ISB CreatorsORCiD
Subramanian, KUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: Labor Laws ; Innovation ; Laws
Subjects: Business and Management
Depositing User: Users 13 not found.
Date Deposited: 16 Nov 2014 09:27
Last Modified: 20 Jan 2015 17:53
URI: http://eprints.exchange.isb.edu/id/eprint/278
Publisher URL: http://dx.doi.org/10.1086/674106
Publisher OA policy: http://www.sherpa.ac.uk/romeo/issn/0022-2186/
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