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Industrial and Corporate Change, Volume 11, Number 3, pp. 391-426
© 2002 Oxford University Press

Labour market regulation, industrial relations and technological regimes: a tale of comparative advantage

Andrea Bassanini and Ekkehard Ernst

A. Bassanini: OECD, DEELSA, 2 Rue André Pascal, 75775 Paris Cedex 16, France. Email: andrea.bassanini{at}oecd.org.
E. Ernst: OECD, Economics Department, and CEPREMAP.

Abstract

In this paper we present comparative evidence from OECD countries concerning the impact of labour market institutions and regulations on technological specialization. The interplay between the degree of labour market flexibility, the system of industrial relations and the knowledge base of different industries determines the viability of different human resource strategies, thereby shaping the patterns of comparative advantage. Our empirical results show that countries with coordinated industrial-relations systems and strict employment protection tend to specialize in industries with a cumulative knowledge base. We argue that two mechanisms explain these patterns. The larger the scope for resorting to internal labour markets, the lower the adjustment costs imposed by labour market regulation. Furthermore, employment protection and coordinated industrial-relations regimes, by aligning workers' and firms' bjectives, encourage firm-sponsored training as well as the accumulation of firm-specific competencies, allowing firms to fully exploit the potential of the internal labour market.


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