Employment protection laws and the commercialization of new products: A cross-country study

Abstract

Although there are opposing theoretical arguments on the relationship between the strength of a country's employment protection laws (EPLs) and innovation, empirical evidence tilts towards a positive relationship. However, research has mainly focused on the early stages of the innovation process, such as R&D and patenting. This study examines the role of EPLs in the later stages of the innovation process: the commercialization of new products. In particular, we focus on EPLs' relationship with two different new product commercialization outcomes: the launch and subsequent sales of new products. Using data on small European firms, we find that, controlling for invention, stricter EPLs are negatively associated with firms' likelihood of launching new products, but positively associated with the sales from new products. We discuss the implications of our results for theory and practice.