Speaker: Frederick Guy , Birkbeck College
We examine the effect on innovation of national differences in two categories of social insurance: employment protection (EP), which is the laws and institutions which provide job security; and unemployment protection (UP), which state expenditure on support for, and re-employment of, the unemployed. We argue that social insurance affects the diversity of human capital in the labor market, and diversity in turn improves the country’s innovation performance. We argue that both UP and EP encourage investment in risky/specific skills by providing insurance against long-run uncertainty of demand for skills. However, UP also insures individuals against short-term uncertainty about such demand and thus promotes greater skill diversity. Estimating the effects of UP and EP on patenting for 25 OECD countries over 24 years, we find a positive effect from UP, a negative effect from EP, and evidence that the UP effect is mediated by diversity of skill.