Research project TA/00/23 (Research action TA)
This project assesses the impact of product market reform and labour bargaining on the capacity of Belgian firms to innovate.
Competitive product markets and flexible labour markets are considered as two incentives for innovation, which in turn are considered to be a factor for productivity growth and competitiveness. As regards the labour market, a distinctive characteristic of the institutional environment of Belgian (and European) firms is the importance of collective bargaining for the determination of wages, labour conditions and economic rents. Rent-seeking by labour unions is believed to depress innovative capacities, because of the ‘hold up’ problem (reconsidering claims when innovation rents materialise). On the other hand, unions may actually spur innovation, e.g. because rents for the lower skilled are maximised at profit maximising innovation effort. The ‘hold up’ problem might also be countered by ‘strategic innovation’ by oligopolistic firms in order to maintain their market share. Product market liberalisation offers new profit opportunities and threats to firms, inducing them to invest and to innovate. Yet, if first mover advantages and threshold effects are important, smaller firms might be marginalised because of the sub-optimal scale at which they operate.
When considering their effect on innovativeness, labour bargaining and product market liberalisation are considered simultaneously such that their interaction effect is not neglected. For example, labour unions might oppose liberalisation because of the induced losses of jobs and worsening labour conditions, or be tempted to play an end game and try to capture as much rents as possible, if firms face a substantial loss of market shares in a liberalised economy. On the other hand, if union bargaining power is weakened by product market liberalisation, the firms' incentive to innovate may increase, if the 'hold up' problem holds.
Methodologically, the relationships between innovation, product market reform and collective bargaining are analyzed at two complementary levels.
1. The econometric estimation of the effect of product market liberalisation and collective bargaining on innovation in a unified model, which allows to take account of their interaction effects and include the indirect effects of both on innovativeness. This consists of three steps.
a. The estimation of trade union bargaining power, of relative wage preference and the determination of the bargaining regime, using company account and balance sheet data at the European or national level (Amadeus, Belfirst, Reach, Diane and Fame).
b. The determination of indicators of product market reform using company account and balance sheet data at the European or national level (Amadeus, Belfirst, Reach, Diane, Fame) and the OECD data on product market regulation.
c. The estimation of the relation between product market reform, collective bargaining and innovativeness, taking into account their interaction effect and control variables, identified from the literature, using in particular the KLEMS, STAN and ANBERD data.
2. The development of practical case studies of reform in the EU, for example of the former state regulated monopolies where liberalisation was the most important in the recent past following the Single Act Treaty, but also the retail trade sector where regulatory reform is at issue as well.
From REFBARIN, the following results are expected :
- The identification of the effect of product market reform on innovativeness, controlling for the characteristics of collective bargaining.
- The identification of the effect of collective bargaining on innovativeness, controlling for the product market characteristics.
- The identification of the interaction effect of trade union bargaining power, trade union relative wage preferences and product market reform on innovativeness.
- The determination of the country or sector specific characteristics of the relation between innovativeness, product market reform and collective bargaining. The relevance of international heterogeneity will be assessed from the estimation of their relation for differenT European countries separately, which allows to identify best practices in terms of economic policy.
- Combining econometric estimations and the development of cases studies allows to analyze the relation between collective bargaining, product market reform and innovation at different levels, which depend on data availability (mostly at the sectoral level) and the demand for detailed information (at firm or plant level).
Réforme des marchés des biens, régulation du marché du travail et capacité d’innovation des entreprises belges (REFBARIN) : résumé
Bruxelles : Politique scientifique fédérale, 2010 (SP2190)
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Productmarkthervorming, collectief arbeidsmarktoverleg en het innovatievermogen van de Belgische ondernemingen (REFBARIN) : samenvatting
Brussel: Federaal Wetenschapsbeleid, 2010 (SP2191)
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Product market reform, labour bargaining and innovativeness of Belgian firms (REFBARIN) : summary
Brussels : Federal Science Policy, 2010 (SP2192)
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