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Firm size distribution and employment protection legislation in Italy

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Author Info
Fabiano Schivardi () (Banca d'Italia)
Roberto Torrini () (Banca d'Italia)

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Abstract

We study the role of employment protection legislation (EPL) in explaining the relative small average size of Italian firms. We construct a simple model that shows that the smooth relation between size and growth probability is disturbed in proximity of the thresholds at which EPL applies differentially. We use a comprehensive dataset of all Italian firms between 1986 and 1998 to estimate the effects of EPL in terms of discouraging small firms from growing. 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. In terms of policy, these findings suggest that changes in EPL are not likely to have a large impact on the propensity of small firms to grow.

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File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td04/td504_04/td504/tema_504.pdf
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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 504.

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Date of creation: Jun 2004
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Handle: RePEc:bdi:wptemi:td_504_04

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Related research
Keywords: Firm size distribution; firing costs; employment protection;

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Find related papers by JEL classification:
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 381-402, July. [Downloadable!] (restricted)
  2. Patrizio Pagano & Fabiano Schivardi, 2001. "Firm Size Distribution and Growth," Temi di discussione (Economic working papers) 394, Bank of Italy, Economic Research Department. [Downloadable!]
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  3. Torrini, Roberto, 2005. "Cross-country differences in self-employment rates: the role of institutions," Labour Economics, Elsevier, vol. 12(5), pages 661-683, October. [Downloadable!] (restricted)
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  4. David H. Autor & John J. Donohue III & Stewart J. Schwab, 2003. "The Costs of Wrongful-Discharge Laws," NBER Working Papers 9425, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  6. Emilia Bonaccorsi di Patti & Giorgio Gobbi, 2003. "The effects of bank mergers on credit availability: evidence from corporate data," Temi di discussione (Economic working papers) 479, Bank of Italy, Economic Research Department. [Downloadable!]
  7. Saint-Paul, Gilles, 2002. "Employment protection, international specialization, and innovation," European Economic Review, Elsevier, vol. 46(2), pages 375-395, February. [Downloadable!] (restricted)
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Cited by:
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  1. Adriana Kugler & Giovanni Pica, 2005. "Effects of Employment Protection on Worker and Job Flows: Evidence from the 1990 Italian Reform," NBER Working Papers 11658, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Adriana Kugler adkugler@uh.edu & Giovanni Pica, 2005. "The Effects of Employment Protection on the Italian Labour Market," CSEF Working Papers 135, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  3. Rettore, Enrico & Paggiaro, Adriano & Trivellato, Ugo, 2008. "The Effect of Extending the Duration of Eligibility in an Italian Labour Market Programme for Dismissed Workers," IZA Discussion Papers 3633, Institute for the Study of Labor (IZA). [Downloadable!]
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  4. Luigi, Cannnari & Giovanni, D'Alessio & Romina, Gambacorta, 2008. "Capital Gains and Wealth Distribution in Italy," MPRA Paper 15108, University Library of Munich, Germany. [Downloadable!]
  5. Silvia Magri, 2009. "The financing of small entrepreneurs in Italy," Annals of Finance, Springer, vol. 5(3), pages 397-419, June. [Downloadable!] (restricted)
  6. Giorgio Calcagnini & Germana Giombini, 2009. "Does Employment Protection Legislation Affect Firm Investment? The European Case," Working Papers 0902, University of Urbino Carlo Bo, Department of Economics, revised 2009. [Downloadable!]
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