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Firm Size Distribution and EPL in Italy

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Author Info
Fabiano Schivardi ()
Roberto Torrini ()

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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 di.erentially. We use a comprehensive dataset of all Italian firms between 1986 and 1998 to estimate the e.ects 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 e.ects of EPL in the long run. Our results show that EPL does influence firm size distribution, but that its e.ects are quantitatively modest: average firm size would increase by less than 1% when removing the threshold e.ect. 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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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number 2003-613.

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Length: 42 pages
Date of creation: 01 Sep 2003
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Handle: RePEc:wdi:papers:2003-613

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Related research
Keywords: Firm size distribution Employment protection Firing costs

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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References listed on IDEAS
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. Patrizio Pagano & Fabiano Schivardi, 2003. "Firm Size Distribution and Growth," Scandinavian Journal of Economics, Blackwell Publishing, vol. 105(2), pages 255-274, 06. [Downloadable!] (restricted)
    Other versions:
  2. Garibaldi, Pietro & Pacelli, Lia & Borgarello, Andrea, 2003. "Employment Protection Legislation and the Size of Firms," IZA Discussion Papers 787, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, . "What Determines Firm Size?," CRSP working papers 496, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
    Other versions:
  4. 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)
  5. 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)
    Other versions:
  6. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2001. "Are Judges Biased by Labour Market Conditions? The Selection of Firing Litigations for Trial in an Italian Firm," CEPR Discussion Papers 2804, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. 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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  8. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 53-82, January. [Downloadable!] (restricted)
  9. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  10. Ariel Pakes & Paul McGuire, 1994. "Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 555-589, Winter. [Downloadable!] (restricted)
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  11. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn. [Downloadable!] (restricted)
  12. 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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  13. Fabiano Schivardi, 2000. "Rigidita nel mercato del lavoro, disoccupazione e crescita," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 59(1), pages 117-143, April.
  14. Eric Bartelsman & Stefano Scarpetta & Fabiano Schivardi, 2003. "Comparative Analysis of Firm Demographics and Survival: Micro-Level Evidence for the OECD Countries," OECD Economics Department Working Papers 348, OECD Economics Department. [Downloadable!]
  15. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September. [Downloadable!] (restricted)
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Cited by:
(explanations, 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. Tito Boeri & Juan F. Jimeno, . "The Effects of Employment Protection: Learning from Variable Enforcement," Working Papers 252, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  2. Saso Polanec, 2004. "On the Evolution of Size and Productivity in Transition: Evidence from Slovenian Manufacturing Firms," LICOS Discussion Papers 15404, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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