Labor market reform and innovation: Evidence from Spain

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

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