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Labor market reform and innovation: Evidence from Spain

Garc�a-Vega, Mar�a; Kneller, Richard; Stiebale, Joel

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Authors

Joel Stiebale



Abstract

We analyze the effect of a labor market reform on firms' product innovation. The reform , which amounts to a natural experiment, differentially reduced firing costs for some firms, thereby lowering adjustment costs in the presence of demand uncertainty. Using a difference-indifferences framework, we show that the reform increased product innovations. We also provide evidence that the reform induced upgrading of product quality and enabled firms to grow faster and enter new markets. The effects are concentrated in industries with high levels of demand volatility and R&D intensity, where flexible adjustments to unexpected shocks are important.

Citation

García-Vega, M., Kneller, R., & Stiebale, J. (2021). Labor market reform and innovation: Evidence from Spain. Research Policy, 50(5), Article 104213. https://doi.org/10.1016/j.respol.2021.104213

Journal Article Type Article
Acceptance Date Feb 1, 2021
Online Publication Date Mar 12, 2021
Publication Date 2021-06
Deposit Date Feb 5, 2021
Publicly Available Date Sep 13, 2022
Journal Research Policy
Print ISSN 0048-7333
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 50
Issue 5
Article Number 104213
DOI https://doi.org/10.1016/j.respol.2021.104213
Keywords Innovation; New products; Productivity; Labor market reform; EPL JEL Codes: D22; J3; O31; G31
Public URL https://nottingham-repository.worktribe.com/output/5293893
Publisher URL https://www.sciencedirect.com/science/article/abs/pii/S0048733321000172

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