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Identifying the effects of firing restrictions through size-contingent differences in regulation

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  • Schivardi, Fabiano
  • Torrini, Roberto

Abstract

We study the effects of the more stringent employment protection legislation (EPL) that applies in Italy to firms with over 15 employees. We consider firms' propensity to grow when close to that threshold and changes in employment policies when they pass it. Using a comprehensive matched employer-employees dataset, we find that the probability of firms' growth is reduced by around 2 percentage points near the threshold. Using the stochastic transition matrix for firm size, we compute the long-run effects of EPL on the size distribution, finding that they are quantitatively modest. We also find that, contrary to the implications of more stringent firing restrictions, workers in firms just above the threshold have on average less stable employment relations than those just below it. We document that this might be because firms above the threshold make greater use of flexible employment contracts, arguably to circumvent the stricter regulation on open-end contracts.

Suggested Citation

  • Schivardi, Fabiano & Torrini, Roberto, 2008. "Identifying the effects of firing restrictions through size-contingent differences in regulation," Labour Economics, Elsevier, vol. 15(3), pages 482-511, June.
    • Handle: RePEc:eee:labeco:v:15:y:2008:i:3:p:482-511
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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