Employment protection legislation and the IT-sector in OECD countries

Abstract

This paper explores the relationship between employment protection legislation (EPL) and the share of employment in the IT-sector. Evidence from several OECD countries suggests that the importance of the IT-sector is smaller in economies with high levels of EPL than in economies with low levels. This shows up in the amount of resources dedicated to research on IT as well as in the share of employment in the sector. A simple model is provided to explain these facts. EPL affects both labor supply and labor demand in the same way resulting in lower employment equilibrium levels.