English, Article, Journal or magazine article edition: Threshold effects and firm size: The case of firing costs Fabiano Schivardi; Roberto Torrini

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Bookmark: http://trove.nla.gov.au/version/57355
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Threshold Effects and Firm Size: the Case of Firing Costs
Author
  • Fabiano Schivardi
  • Roberto Torrini
Physical Description
  • preprint
Notes
  • We study the role of employment protection legislation (EPL) in determining firm size distribution. In many countries the provisions of EPL are more stringent for firms above certain size thresholds. We construct a simple model that shows that the smooth relation between size and growth probability is broken in proximity of the thresholds at which EPL applies differentially. We use a comprehensive longitudinal dataset of all Italian firms, a country with an important threshold at 15 employees, to estimate the effects of EPL in terms of discouraging small firms from growing. We find that the probability of growing of firms in the proximity of the threshold is reduced by around 2%. We then construct a stochastic transition matrix for firm size that, together with the estimates, allows for a quantitative evaluation of the effects of EPL in the long run. Our results show that EPL does influence firm size distribution, but that its effects are quantitatively modest: average firm size would increase by less than 1% when removing the threshold effect. Our results suggest that EPL is unlikely to be a major determinant of cross-country differences in firm size.
  • RePEc:red:sed004:445
  • We study the role of employment protection legislation (EPL) in determining firm size distribution. In manycountries the provisions of EPL are more stringent for firms above certain size thresholds. We construct asimple model that shows that the smooth relation between size and growth probability is interrupted inproximity of the thresholds at which EPL applies differentially. We use a comprehensive longitudinal dataset ofall Italian firms, a country with an important threshold at 15 employees, to estimate the effects of EPL in termsof discouraging small firms from growing. We find that the probability of firms ' growth in the proximity of thethreshold is reduced by around 2 percentage points. Using the stochastic transition matrix for firm size, wecompute the long-run effects of EPL on size distribution. We find that average firm size would increase by lessthan 1% in steady state when removing the threshold; a quantitatively modest effect.
  • Firm size distribution, Employment protection, Firing costs
  • RePEc:cep:cepdps:dp0633
Language
  • English
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