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Zombie firms and the growth of the living: the labor market channel

Author

Listed:
  • Antonio Accetturo

    (Bank of Italy)

  • Michele Cascarano

    (Bank of Italy)

  • Andrea Locatelli

    (Bank of Italy)

Abstract

Zombie firms may hinder growth not only via capital misallocation, but also by tightening local labor markets. This paper studies whether zombie prevalence weakens healthy firms' ability to expand employment when they face positive export-demand shocks. Using Italian firm-level data for 2015-23, we exploit the variation in the incidence of employment in zombie firms over active population at local labor market level and firm-specific exposure to exogenous export-demand shocks constructed with a shift-share design. We show that firms located in local labor markets with a higher share of employment in zombie firms exhibit a weaker employment response to foreign-demand shocks. Effects are strongest for white-collar workers and for micro and small firms, consistent with tighter constraints on scarce skills and greater reliance on local hiring. Results are robust to alternative zombie definitions and shock constructions.

Suggested Citation

  • Antonio Accetturo & Michele Cascarano & Andrea Locatelli, 2026. "Zombie firms and the growth of the living: the labor market channel," Questioni di Economia e Finanza (Occasional Papers) 1058, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_1058_26
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    Keywords

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    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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