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Employment protection legislation and firm growth: evidence from a natural experiment

Author

Listed:
  • Anders Bornhäll
  • Sven-Olov Daunfeldt
  • Niklas Rudholm

Abstract

A Swedish reform in 2001 made it possible for firms with less than 11 employees to exclude two from the last-in-first-out principle in case of layoffs. The reform increased employment growth with over 4000 additional jobs per year among firms with five to nine employees. Firms with 10 employees became 3.4 percentage points less likely to increase their workforce, indicating that the introduced threshold kept them from growing. Thus, employment protection legislation seems to act as a growth barrier for small firms.

Suggested Citation

  • Anders Bornhäll & Sven-Olov Daunfeldt & Niklas Rudholm, 2017. "Employment protection legislation and firm growth: evidence from a natural experiment," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 26(1), pages 169-185.
    • Handle: RePEc:oup:indcch:v:26:y:2017:i:1:p:169-185.
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    File URL: http://hdl.handle.net/10.1093/icc/dtw017
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    Cited by:

    1. Srhoj Stjepan & Zilic Ivan, 2021. "“Fine...I’ll do it myself”: Lessons from self-employment grants in a long recession period," IZA Journal of Labor Policy, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 11(1), pages 1-32, May.
    2. Kärnä Anders, 2021. "Take it to the (public) bank: The efficiency of public bank loans to private firms," German Economic Review, De Gruyter, vol. 22(1), pages 27-62, February.
    3. Javier López González & Valentina Meliciani & Maria Savona, 2019. "When Linder meets Hirschman: inter-industry linkages and global value chains in business services," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 28(6), pages 1555-1586.
    4. Mariana Mazzucato, 2015. "From Market Fixing to Market-Creating: A New Framework for Economic Policy," SPRU Working Paper Series 2015-25, SPRU - Science Policy Research Unit, University of Sussex Business School.
    5. Alex Coad & Clemens Domnick & Florian Flachenecker & Peter Harasztosi & Mario Lorenzo Janiri & Rozalia Pal & Mercedes Teruel, 2022. "Capacity constraints as a trigger for high growth," Small Business Economics, Springer, vol. 59(3), pages 893-923, October.
    6. Sharon Belenzon & Victor Manuel Bennett & Andrea Patacconi, 2019. "Flexible Production and Entry: Institutional, Technological, and Organizational Determinants," Strategy Science, INFORMS, vol. 4(3), pages 193-216, September.
    7. Sharon Belenzon & Victor Manuel Bennett & Andrea Patacconi, 2019. "Flexible Production and Entry: Institutional, Technological, and Organizational Determinants," NBER Working Papers 25659, National Bureau of Economic Research, Inc.
    8. Johan Karlsson, 2021. "Firm size and growth barriers: a data-driven approach," Small Business Economics, Springer, vol. 57(3), pages 1319-1338, October.
    9. Coad, Alexander & Domnick, Clemens & Flachenecker, Florian & Harasztosi, Peter & Janiri, Mario Lorenzo & Pál, Rozália & Teruel Carrizosa, Mercedes, 2021. "Do capacity constraints trigger high growth for enterprises?," EIB Working Papers 2021/08, European Investment Bank (EIB).
    10. Alex Coad, 2022. "Lumps, Bumps and Jumps in the Firm Growth Process," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 18(4), pages 212-267, April.
    11. Bjuggren, Carl Magnus & Skedinger, Per, 2018. "Does Job Security Hamper Employment Prospects?," Working Paper Series 1255, Research Institute of Industrial Economics.
    12. Alex Coad & Sofia Amaral-Garcia & Peter Bauer & Clemens Domnick & Peter Harasztosi & Rozália Pál & Mercedes Teruel, 2023. "Investment expectations by vulnerable European firms in times of COVID," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(1), pages 193-220, March.
    13. Kun Fu & Anne-Sophie Larsson & Karl Wennberg, 2018. "Habitual entrepreneurs in the making: how labour market rigidity and employment affects entrepreneurial re-entry," Small Business Economics, Springer, vol. 51(2), pages 465-482, August.

    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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