Abstract

We investigate the effect of employee protection laws on inventor behavior. We hypothesize that increased employment protection leads employee inventors to use more intensively firm-specific technologies and thus to produce less disruptive innovations. We exploit employer-employee data derived from patent records to address this research question. In particular, we analyze the effects of the progressive implementation of wrongful discharge laws, which introduced limitations to the employers' ability to fire employees, in U.S. states from the 1970s to the 1990s. The results of the Differences-in-Differences analysis lends support to both of our hypotheses.