DP7919 Employment protection versus flexicurity: on technology adoption in unionised firms

Author(s): Kjell Erik Lommerud, Odd Rune Straume
Publication Date: July 2010
Keyword(s): Employment protection, Flexicurity, Technology adoption, Trade unions
JEL(s): J38, J51, O33
Programme Areas: Labour Economics, Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7919

We analyse how different labour market institutions--employment protection versus ‘flexicurity’--affect technology adoption in unionised firms. We consider trade unions’ incentives to oppose or endorse labour-saving technology and firms’ incentives to invest in such technology. Increased flexicurity--interpreted as less employment protection and a higher reservation wage for workers--unambiguously increases firms’ incentives for technology adoption. If unions have some direct influence on technology, a higher reservation wage also makes unions more willing to accept technological change. Less employment protection has the opposite effect, since this increases the downside (job losses) of labour-saving technology.