Ekkehard Ernst

Labour Market Institutions, Product Market Regulation, and Innovation

In this paper we present comparative evidence from OECD countries concerning the impact of product and labour market regulations on innovation. While product and labour market policies usually aim at objectives other than innovation, they may have important consequences for the profitability of firms’ innovative strategies. Our regression analysis provides some cross-country evidence that enhancing competition in the product market -- while guaranteeing intellectual property rights -- seems to have a positive impact on the innovation performance of a country. Conversely, the relationship between innovation and job protection does not seem to be univocal. The sign and magnitude of the effect of the latter crucially depends on the systems of industrial relations and the specific characteristics of each industry. Indeed, the larger the scope for resorting to internal labour markets, the lower the adjustment costs imposed by labour market regulation. Moreover, in industries with a ... Institutions du marche du travail, reglementation du marche des produits et innovation : Evidence en coupe transversale Dans ce papier nous presentons de l’evidence comparative concernant l’impact de la reglementation des marches du travail et des produits sur l’innovation dans les pays de l’OCDE. Meme si une telle reglementation a en general pour but des objectives autres que l’innovation, elle peut avoir des consequences importantes pour la rentabilite des strategies innovatrices des entreprises. Nos regressions avancent de l’evidence transversale qu’une augmentation de la concurrence sur le marche des produits – tout en garantissant les droits de propriete intellectuelle – semble avoir un impact positif sur la performance innovatrice d’un pays. En revanche, la relation entre l’innovation et la protection de l’emploi ne semble pas etre sans ambiguite. Le signe et l’importance de cette derniere depend de maniere cruciale du systeme des relations industrielles et des caracteristiques de chaque industrie. En effet, plus les marches internes du travail sont importants, moins la reglementation du ...Dans ce papier nous presentons de l’evidence comparative concernant l’impact de la reglementation des marches du travail et des produits sur l’innovation dans les pays de l’OCDE. Meme si une telle reglementation a en general pour but des objectives autres que l’innovation, elle peut avoir des consequences importantes pour la rentabilite des strategies innovatrices des entreprises. Nos regressions avancent de l’evidence transversale qu’une augmentation de la concurrence sur le marche des produits – tout en garantissant les droits de propriete intellectuelle – semble avoir un impact positif sur la performance innovatrice d’un pays. En revanche, la relation entre l’innovation et la protection de l’emploi ne semble pas etre sans ambiguite. Le signe et l’importance de cette derniere depend de maniere cruciale du systeme des relations industrielles et des caracteristiques de chaque industrie. En effet, plus les marches internes du travail sont importants, moins la reglementation du ...

Interaction of Labour and Credit Market in Growth Regimes: A Theoretical and Empirical Analysis

Earlier research on the links between economic growth and credit market development has abstracted from interactions between labour and financial markets. Moreover, most studies have analysed macro‐finance linkages at the aggregate level, ignoring the decentralized nature of search and matching in labour and credit markets. This paper fills this void and thus allows for a more disaggregate analysis of policy effects. We show that the credit market exacerbates and accentuates the labour market effects, having amplifying effects on output, consumption, employment and welfare. Depending on the strength of the debt‐dynamics, several growth dynamics emerge from this interaction between labour and credit markets with two distinct steady states: a stable growth regime and another one that is vulnerable and unstable. To test the empirical implications of the theoretical model, a multi‐regime VAR (MRVAR) model is fitted to the US output and credit market data. The MRVAR estimation indicates that shocks to credit conditions during a high‐growth period have markedly different effects than during a low growth and recessionary period. Also, there are substantial state‐dependent asymmetries with respect to the sign of shocks to credit conditions, confirming the theoretical predictions.

The Dutch Tax-Benefit System and Life-Cycle Employment

An overlapping-generations model with search unemployment is calibrated for the Netherlands to assess the impact of tax-benefit reforms on labour supply. Several reforms are analysed, in particular the introduction of a flat tax and pension reforms. The model demonstrates the potential of these reforms to raise labour supply. In particular, pension reforms, such as lowering replacement rates for pensioners, help to boost participation rates of older workers. On the other hand, a flat tax would promote longer working hours across the board, thereby rising labour supply. However, the introduction of a flat tax is a costly measure and would increase the primary general government deficit by close to 2% of GDP. Simultaneous measures to lower the structural unemployment rate would not only help to avoid adverse effects of such a tax reform on the fiscal balance but would strengthen further the positive effects of a flat tax on working hours.

Hiring Uncertainty: A New Labour Market Indicator

This paper develops a forward-looking indicator for macroeconomic uncertainty that employers are confronted with when they take decisions about the size of their workforce. The model that provides the basis for this uncertainty indicator interprets hires and lay-off s of workers as an investment into projects with uncertain return. Employers decide when to undertake this investment. Uncertainty can then be derived as a function of a labour productivity threshold above which it is profitable for employers to hire workers. The measure that is first theoretically derived is then taken to the data. Economy-wide uncertainty for G7 economies and uncertainty by economic sector for the United States are calculated from data on hiring demand and unit labour costs. The resulting quarterly time series demonstrate that in most economies hiring uncertainty went up at the onset of the Great Recession and has remained at an elevated level since then.

The Dutch Tax-Benefit System and Life-Cycle Employment: Outcomes and Reform Options

An overlapping-generations model with search unemployment is calibrated for the Netherlands to assess the impact of tax-benefit reforms on labour supply. Several reforms are analysed, in particular the introduction of a flat tax and pension reforms. The model demonstrates the potential of these reforms to raise labour supply. In particular, pension reforms, such as lowering replacement rates for pensioners, help to boost participation rates of older workers. On the other hand, a flat tax would promote longer working hours across the board, thereby rising labour supply. However, the introduction of a flat tax is a costly measure and would increase the primary general government deficit by close to 2% of GDP. Simultaneous measures to lower the structural unemployment rate would not only help to avoid adverse effects of such a tax reform on the fiscal balance but would strengthen further the positive effects of a flat tax on working hours.

Might Tobin be Right

When search frictions are present on financial markets, money demand arises endogenously as not all savings will be seamlessly invested in productive capacity. In such a situation, monetary and fiscal policies affect households’ portfolio decisions through their impact on the value of real balances. With exogenous growth, money continues to be neutral. In case of endogenous growth, however, money-induced portfolio shifts allow for the existence of an optimal inflation rate. Similarly, portfolio shifts induced by governments’ fiscal interventions allow to enhance growth as public debt helps to overcome search externalities by providing additional assets on the financial market. Finally, when monetary and fiscal policy interact, growth is maximum in comparison to each of the two policies taken individually. The results of the paper suggest that balance-sheet recessions can be overcome by targeted monetary and fiscal interventions that provide additional assets and induce portfolio shifts whereby these additional assets are invested in productive capacity.

Strengthening Innovation in the Netherlands

Strengthening the innovation system in the Netherlands is a priority for raising productivity growth, which has been relatively weak in recent years. Knowledge creation in the Netherlands is strong -- scientific publications per capita are the sixth highest in the OECD -- but innovation activity is only around the average for OECD countries according to the EIS Summary Innovation Index. The main weaknesses are in business R&D intensity, the share of the population with tertiary education, and in commercially applying new knowledge. This paper discusses reforms being implemented to overcome these weaknesses and suggests directions for building on such reforms. Co-operation between public research organisations and innovating firms is being strengthened, support for innovation is being rationalised and measures are being taken to increase both the current and prospective supply of scientists and engineers with a view to making the Netherlands a more attractive location for R&D investments. To increase the tertiary attainment rate, the authorities are considering introducing shorter tertiary courses and are experimenting with greater competition among tertiary education suppliers for public funds. To strengthen performance in commercial application of new knowledge, barriers to entrepreneurship are being reduced but more should be done to strengthen incentives for entrepreneurship. This Working Paper relates to the 2005 OECD Economic Survey of the Netherlands (www.oecd.org/eco/surveys/netherlands).