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Firm Size Distortions and the Productivity Distribution: Evidence from France

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Listed:
  • Garicano, Luis

    (CEP, London School of Economics)

  • Lelarge, Claire

    (CREST)

  • Van Reenen, John

    (MIT Sloan School of Management)

Abstract

We show how size-contingent laws can be used to identify the equilibrium and welfare effects of labor regulation. Our framework incorporates such regulations into the Lucas (1978) model and applies this to France where many labor laws start to bind on firms with exactly 50 or more employees. Using data on the population of firms between 2002 and 2007 period, we structurally estimate the key parameters of our model to construct counterfactual size, productivity and welfare distributions. With flexible wages, the deadweight loss of the regulation is below 1% of GDP, but when wages are downwardly rigid welfare losses exceed 5%. We also show, regardless of wage flexibility, that the main losers from the regulation are workers (and to a lesser extent large firms) and the main winners are small firms.

Suggested Citation

  • Garicano, Luis & Lelarge, Claire & Van Reenen, John, 2013. "Firm Size Distortions and the Productivity Distribution: Evidence from France," IZA Discussion Papers 7241, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp7241
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    More about this item

    Keywords

    firm size; productivity; labor regulation; power law;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • J8 - Labor and Demographic Economics - - Labor Standards
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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