Employment protection and industry innovation

Abstract

We examine the impact of the strictness of employment protection legislation (EPL) on innovation intensity. To this purpose, we use a panel of annual data from Organisation for Economic Co-operation and Development countries and analyze the variation of innovation intensity within country between industries. Our estimates indicate that stricter EPL led to significantly lower innovation intensity in industries with higher job layoff propensity. Our findings are robust to additional industry covariates and other labor market institutions that may affect innovation performance and industry job layoff propensity.