RE No. 6: How ‘structural reforms’ of labour markets harm innovation

Abstract

Structural reforms of labour markets frustrate the diffusion of labour-saving technologies. Moreover, they damage the functioning of the ‘creative accumulation’ innovation model that depends on the long-run accumulation of firm-specific knowledge. It is not by accident that the champions of ‘structural reforms’ of the 1980s (i.e. the US, the UK, Australia or New Zealand) show persistently lower rates of labour productivity growth when compared to countries in ‘Old Europe’ and have problems competing in classical industries.