It is commonly argued that labor market institutions such as employment protection worsen
an economy’s performance and particularly so, if product markets become more competitive.
Empirical evidence, however, has difficulties to detect a robust negative correlation between
employment protection and growth. We show in a model with step-by-step innovations that
whether employment protection decreases incentives to innovate and thus productivity
growth depends on the degree of product market competition. For reasonable parameter
values product market deregulation fosters growth substantially more in the flexible than in
the constrained economy.
We use cookies to provide you with an optimal website experience. This includes cookies that are necessary for the operation of the site as well as cookies that are only used for anonymous statistical purposes, for comfort settings or to display personalized content. You can decide for yourself which categories you want to allow. Please note that based on your settings, you may not be able to use all of the site's functions.
Cookie settings
These necessary cookies are required to activate the core functionality of the website. An opt-out from these technologies is not available.
In order to further improve our offer and our website, we collect anonymous data for statistics and analyses. With the help of these cookies we can, for example, determine the number of visitors and the effect of certain pages on our website and optimize our content.