Size-Dependent Regulations, Firm Size Distribution, and Reallocation

Francois Gourio and Nicolas Roys

No 18657, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In France, firms with 50 employees or more face substantially more regulation than firms with less than 50. As a result, the size distribution of firms is visibly distorted: there are many firms with exactly 49 employees. We model the regulation as the combination of a sunk cost that must be paid the first time the firm reaches 50 employees, and a payroll tax that is paid each period thereafter when the firm operates with more than 50 employees. We estimate the model using indirect inference by fitting the discontinuity of the size distribution. The key finding is that the regulation is equivalent to a combination of a sunk cost approximately equal to about one year of an average employee salary, and a small payroll tax of 0.04%. Our structural model fits well the discontinuity in the size distribution. Removing the regulation improves labor allocation across firms, leading in steady-state to an increase in output per worker slightly less than 0.3%, holding the number of firms fixed. However, if firm entry is elastic, the steady-state gains are an order of magnitude smaller.

JEL-codes: E23 L11 L25 O1 (search for similar items in EconPapers)
Date: 2012-12
New Economics Papers: this item is included in nep-bec, nep-ent and nep-mac
Note: DEV LS PE PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published as François Gourio & Nicolas Roys, 2014. "Size‐dependent regulations, firm size distribution, and reallocation," Quantitative Economics, Econometric Society, vol. 5, pages 377-416, 07.

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Related works:
Working Paper: Size-dependent regulations, firm size distribution, and reallocation (2013)
Working Paper: Size-Dependent Regulations, Firm Size Distribution, and Reallocation (2013)
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