The (negative) impact of supply-side labour market reforms on productivity: an overview of the evidence

Abstract

In spite of impressive stories about artificial intelligence or Industry 4.0, the USA, Japan and Western Europe experience a severe productivity crisis since about 2005. This article fills a gap in recent attempts at understanding the productivity crisis, arguing that there is a negative impact of supply-side labour market reforms on innovation and productivity. The negative impact of more flexible labour relations is significant in medium-high and high-tech sectors with a high ‘cumulativeness’ of knowledge, that is if the historical accumulation of firm-specific and often tacit knowledge is important for innovative competencies. In low-tech sectors as well as for high-tech entrepreneurship, where cumulativeness of knowledge is low, there is little or no effect.