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Employment Protection Legislation and Firm Growth: Evidence from a Natural Experiment

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Listed:
  • Anders Bornhal

    () (HUI Research AB, SE-103 29 Stockholm, Sweden; Department of Economics, Dalarna University, SE-781 88 Borlange, Sweden
    School of Business, Orebro University, SE-701 82 Orebro Sweden.)

  • Sven-Olov Daunfeldt

    () (HUI Research AB, SE-103 29 Stockholm, Sweden; Department of Economics, Dalarna University, SE-781 88 Borlange, Sweden)

  • Niklas Rudholm

    () (HUI Research AB, SE-103 29 Stockholm, Sweden; Department of Economics, Dalarna University, SE-781 88 Borlange, Sweden)

Abstract

A natural experiment is used to identify the causal relationship be- tween employment protection legislation and Örm growth in Sweden. A reform of the last-in-Örst-out principle increased employment growth with over 4,000 additional jobs per year in Örms with less than eleven employees. Firms with ten employees became 3.4 percentage points less likely to increase their workforce, indicating that an introduced threshold kept them from growing. Thus, employment protection leg- islation seems to act as a growth barrier for small Örms.

Suggested Citation

  • Anders Bornhal & Sven-Olov Daunfeldt & Niklas Rudholm, 2015. "Employment Protection Legislation and Firm Growth: Evidence from a Natural Experiment," SPRU Working Paper Series 2015-17, SPRU - Science and Technology Policy Research, University of Sussex.
  • Handle: RePEc:sru:ssewps:2015-17
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    More about this item

    Keywords

    Firm growth; growth barriers; employment protection;

    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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