Size-Dependent Regulations, Firm Size Distribution, and Reallocation
AbstractIn France, firms with 50 employees or more face substantially more regulation than firms with less than 50. As a result, the size distribution of firms is visibly distorted: there are many firms with exactly 49 employees. We model the regulation as the combination of a sunk cost that must be paid the first time the firm reaches 50 employees, and a payroll tax that is paid each period thereafter when the firm operates with more than 50 employees. We estimate the model using indirect inference by fitting the discontinuity of the size distribution. The key finding is that the regulation is equivalent to a combination of a sunk cost approximately equal to about one year of an average employee salary, and a small payroll tax of 0.04%. Our structural model fits well the discontinuity in the size distribution. Removing the regulation improves labor allocation across firms, leading in steady-state to an increase in output per worker slightly less than 0.3%, holding the number of firms fixed. However, if firm entry is elastic, the steady-state gains are an order of magnitude smaller.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18657.
Date of creation: Dec 2012
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Other versions of this item:
- Nicolas Roys & Francois Gourio, 2013. "Size-Dependent Regulations, Firm Size Distribution, and Reallocation," 2013 Meeting Papers 199, Society for Economic Dynamics.
- E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
- NEP-BEC-2013-01-07 (Business Economics)
- NEP-ENT-2013-01-07 (Entrepreneurship)
- NEP-MAC-2013-01-07 (Macroeconomics)
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- Garicano, Luis & Lelarge, Claire & Van Reenen, John, 2013.
"Firm Size Distortions and the Productivity Distribution: Evidence from France,"
CEPR Discussion Papers
9495, C.E.P.R. Discussion Papers.
- Garicano, Luis & Lelarge, Claire & Van Reenen, John, 2013. "Firm Size Distortions and the Productivity Distribution: Evidence from France," IZA Discussion Papers 7241, Institute for the Study of Labor (IZA).
- Luis Garicano & Claire LeLarge & John Van Reenen, 2013. "Firm Size Distortions and the Productivity Distribution: Evidence from France," NBER Working Papers 18841, National Bureau of Economic Research, Inc.
- Luis Garicano & Claire Lelarge & John Van Reenen, 2012. "Firm Size Distortions and the Productivity Distribution: Evidence from France," CEP Discussion Papers dp1128, Centre for Economic Performance, LSE.
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