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Firms And Flexibility

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  • BART HOBIJN
  • AYŞEGÜL ŞAHIN

Abstract

We study the effects of labor market rigidities and frictions on firm-size distributions and dynamics. We introduce a model of endogenous entrepreneurship, labor market frictions, and firm-size dynamics with many types of rigidities, such as hiring and firing costs, search frictions with vacancy costs, unemployment benefits, firm entry costs, and a tax wedge between wages and labor costs. We use the model to analyze how each rigidity explains firm-size differentials between the United States and France. We find that when we include all rigidities and frictions except hiring costs and search frictions, the model accounts for much of the firm-size differentials between the United States and France. The addition of search frictions with vacancy costs generates implausibly large differentials in firm-size distributions.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 51 (2013)
Issue (Month): 1 (01)
Pages: 922-940

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Handle: RePEc:bla:ecinqu:v:51:y:2013:i:1:p:922-940

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Cited by:
  1. Cosar, Kerem & Guner, Nezih & Tybout, James R, 2013. "Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy," CEPR Discussion Papers 9732, C.E.P.R. Discussion Papers.
  2. François Gourio & Nicolas A. Roys, 2012. "Size-Dependent Regulations, Firm Size Distribution, and Reallocation," NBER Working Papers 18657, National Bureau of Economic Research, Inc.
  3. Michael W. L. Elsby, 2008. "Marginal Jobs, Heterogeneous Firms, & Unemployment Flows," NBER Working Papers 13777, National Bureau of Economic Research, Inc.

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