|This centre is a member of The LSE Research Laboratory [RLAB]: CASE | CVER | CEP | SERC | STICERD||Cookies?|
Paper No' CEPDP1128: | Full paper
Save Reference as: BibTeX File | EndNote Import File
Keywords: Firm size; productivity, labor regulation, power law
JEL Classification: L11; L51; J8; L25
Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: CEP Discussion Papers
Share this page: Google Bookmarks | Facebook | Twitter
Abstract:A major empirical challenge in economics is to identify how regulations (such as firing costs) affect economic efficiency. Almost all countries have regulations that increase costs when firms cross a discrete size threshold. We show how these size-contingent regulations can be used to identify the equilibrium and welfare effects of regulation through combining a new model with the firm-level distributions of size and productivity. Our framework adapts the Lucas (1978) model to a world with size-contingent regulations and applies this to France where there are sharp increases in firing costs (which we model as a labor tax) when firms employ 50 or more workers. Using administrative data on the population of firms 2002 through 2007, we show how this regulation has major effects on the distribution of firm size (a “broken power law”) and productivity. We then econometrically recover the key parameters of the model in order to estimate the costs of regulation which appear to be nontrivial.
Copyright © RLAB & LSE 2003 - 2016 | LSE, Houghton Street, London WC2A 2AE | Contact: RLAB | Site updated 02 May 2016