Do Labor Laws Foster or Inhibit Innovation?
The latest MIT Sloan Management Review reports on a new study that surprised me.
Researchers Viral Acharya, Ramin Baghai-Wadji, and Krishnamurthy V. Subramanian correlated labor laws with patent and economic data to show that labor policies that make it harder to let people go seem to correlate with more innovation and greater economic growth:
I have to admit that I'm skeptical about the authors' reasoning. For one thing, the quantity of patents is not a good measure for innovation or risk-taking, although I see it used frequently. Perhaps the engineers are producing a lot of "incremental improvement" patents because they have to keep themselves busy during slow times.
You also have to look at the economic utilization of the patented ideas, and how many of the patents represented true breakthroughs vs. incremental improvements.
Personally, I'll take flexibility any day.
Researchers Viral Acharya, Ramin Baghai-Wadji, and Krishnamurthy V. Subramanian correlated labor laws with patent and economic data to show that labor policies that make it harder to let people go seem to correlate with more innovation and greater economic growth:
Why would laws that make it more complicated for employers to let workers go have a positive effect on innovation? One reason, the authors suggest, is that such laws may make employees more willing to take the greater risks associated with attempting innovation.
I have to admit that I'm skeptical about the authors' reasoning. For one thing, the quantity of patents is not a good measure for innovation or risk-taking, although I see it used frequently. Perhaps the engineers are producing a lot of "incremental improvement" patents because they have to keep themselves busy during slow times.
You also have to look at the economic utilization of the patented ideas, and how many of the patents represented true breakthroughs vs. incremental improvements.
Personally, I'll take flexibility any day.
Labels: innovation
posted by Katherine Radeka
at
6:01 PM
1 Comments:
Ms. Radeka,
The study seems to confuse correlation with causation. While tougher labor laws may correlate with greater innovation, as you implied, they are most likely not the cause. Management's view on the balance between adhering to strict rules and risk taking would be a better indication of how well a company innovates.
Labor laws are there to protect you and I from an employer's excesses period.
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