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Firm Size Distortions and the Productivity Distribution: Evidence from France

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  • Garicano, Luis
  • Lelarge, Claire
  • Van Reenen, John

Abstract

We show how size-contingent laws can be used to identify the equilibrium and welfare effects of labor regulation. Our framework incorporates such regulations into the Lucas (1978) model and applies this to France where many labor laws start to bind on firms with exactly 50 or more employees. Using data on the population of firms between 2002 and 2007 period, we structurally estimate the key parameters of our model to construct counterfactual size, productivity and welfare distributions. With flexible wages, the deadweight loss of the regulation is below 1% of GDP, but when wages are downwardly rigid welfare losses exceed 5%. We also show, regardless of wage flexibility, that the main losers from the regulation are workers (and to a lesser extent large firms) and the main winners are small firms.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9495.

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Date of creation: Jun 2013
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Handle: RePEc:cpr:ceprdp:9495

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Keywords: firm size; labor regulation; power law; productivity;

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Citations

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Cited by:
  1. François Gourio & Nicolas Roys, 2013. "Size-dependent regulations, firm size distribution, and reallocation," Working Paper Series WP-2013-11, Federal Reserve Bank of Chicago.
  2. Serguey Braguinsky & Lee G. Branstetter & Andre Regateiro, 2011. "The Incredible Shrinking Portuguese Firm," NBER Working Papers 17265, National Bureau of Economic Research, Inc.
  3. Henk Kox & George van Leeuwen (Statistics Netherlands), 2012. "Dynamic market selection in EU business services," CPB Discussion Paper 210, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Chang-Tai Hsieh & Benjamin A. Olken, 2014. "The Missing "Missing Middle"," NBER Working Papers 19966, National Bureau of Economic Research, Inc.
  5. Vicente Salas-Fumás & J. Sanchez-Asin & David Storey, 2014. "Occupational choice, number of entrepreneurs and output: theory and empirical evidence with Spanish data," SERIEs, Spanish Economic Association, vol. 5(1), pages 1-24, March.
  6. Silvia Giacomelli & Carlo Menon, 2013. "Firm size and judicial efficiency: evidence from the neighbour's court," Temi di discussione (Economic working papers) 898, Bank of Italy, Economic Research and International Relations Area.

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