DP7919 | Employment protection versus flexicurity: on technology adoption in unionised firms

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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, since this increases the downside (job losses) of labour-saving technology.