Firm Size Distortions and the Productivity Distribution: Evidence from France
American Economic Review
vol. 106,
no. 11, November 2016
(pp. 3439-79)
(Complimentary)
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 it to France where many labor laws start to bind on firms with 50 or more employees. Using population data on firms between 1995 and 2007, we structurally estimate the key parameters of our model to construct counterfactual size, productivity, and welfare distributions. We find that the cost of these regulations is equivalent to that of a 2.3 percent variable tax on labor. In our baseline case with French levels of partial real wage inflexibility, welfare costs of the regulations are 3.4 percent of GDP (falling to 1.3 percent if real wages were perfectly flexible downward). The main losers from the regulation are workers--and to a lesser extent, large firms--and the main winners are small firms.Citation
Garicano, Luis, Claire Lelarge, and John Van Reenen. 2016. "Firm Size Distortions and the Productivity Distribution: Evidence from France." American Economic Review, 106 (11): 3439-79. DOI: 10.1257/aer.20130232Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- J08 Labor Economics Policies
- J31 Wage Level and Structure; Wage Differentials
- K31 Labor Law
- L25 Firm Performance: Size, Diversification, and Scope