Employment protection versus flexicurity : on technology adoption in unionised tirms

Abstract

We analyse how different labour-market institutions – employment protection versus ‘flexicurity’– affect technology adoption in unionised firms. We consider trade unions’ incentives to oppose or endorse labour-saving technology and firms’ incentives to invest in such technology. Increased flexicurity – interpreted as less employment protection and a higher reservation wage for workers – unambiguously increases firms’ incentives for technology adoption. If unions have some direct influence on technology, a higher reservation wage also makes unions more willing to accept technological change. Less employment protection has the opposite effect, as this increases the downside (job losses) of labour-saving technology.