Barriers to Reallocation and Economic Growth: The Effects of Firing Costs

Toshihiko Mukoyama and Sophie Osotimehin

American Economic Journal: Macroeconomics, 2019, vol. 11, issue 4, 235-70

Abstract: We study how factors that hinder the reallocation of inputs across firms influence aggregate productivity growth. We extend Hopenhayn and Rogerson's (1993) firm-dynamics model to allow for endogenous innovation. We evaluate the effects of firing taxes on reallocation, innovation, and productivity growth. We find firing taxes can have opposite effects on entrants' innovation and incumbents' innovation, and the overall outcome depends on the relative strengths of these forces. In the entrant-driven growth calibration, firing taxes reduce aggregate productivity growth, whereas aggregate productivity growth increases in the incumbent-driven growth calibration.

JEL-codes: D24 E23 E24 J23 J24 J62 K31 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/mac.20170170
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Citations: View citations in EconPapers (17)

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Working Paper: Barriers to Reallocation and Economic Growth: the Effects of Firing Costs (2018)
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