Do institutional firing costs slow the diffusion of information and communications technology (ICT)? The paper develops a model in which, as the technology at a given plant drops behind the best practice, it optimally reduces its workforce. As a result, firing costs are particularly detrimental to profits in industries in which the rate of technical change is rapid - such as ICT - and countries with high firing costs specialize in industries in which technical change is sluggish. The paper suggests that industry composition is a new channel through which labor market regulation might impact macroeconomic aggregates. (Copyright: Elsevier)
Employment protection; Firing costs; Rate of technical change; Information and communications technology; Industry composition
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