Employee representation legislations and innovation: Evidence from manufacturing sectors

Filippo Belloc

FEEM Working Paper No. 004.2016

2016

We analyse how sectoral innovation outcomes are aﬀected by national legislations of worker participation to corporate governance. We develop a model of employee representation laws (ERL) and innovation in the presence of incomplete labour contracts and predict heterogeneous ERL eﬀects across diﬀerent systems of dismissal regulation. We then perform a panel regression analysis, exploiting panel data for ﬁve countries over the 1977-2005 period and 21 two-digit manufacturing sectors. We ﬁnd that ERL eﬀects on aggregate innovation output are positive, statistically signiﬁcant and higher in magnitude where national labour laws impose signiﬁcant ﬁring costs to the ﬁrm with respect to institutional settings in which ﬁring costs are low or absent. These results are robust to possible technology selection dynamics, endogeneity and institutional changes in the legal system of patent protection.