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Firm Size Distortions and the Productivity Distribution: Evidence from France

Luis Garicano (), Claire Lelarge and John van Reenen ()

American Economic Review, 2016, vol. 106, issue 11, 3439-79

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.

JEL-codes: D22 D24 J08 J31 K31 L25 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20130232
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Related works:
Working Paper: Firm size distortions and the productivity distribution:evidence from France (2016) Downloads
Working Paper: Firm Size Distortions and the Productivity Distribution: Evidence from France (2013) Downloads
Working Paper: Firm Size Distortions and the Productivity Distribution: Evidence from France (2013) Downloads
Working Paper: Firm Size Distortions and the Productivity Distribution: Evidence from France (2013) Downloads
Working Paper: Firm Size Distortions and the Productivity Distribution: Evidence from France (2012) Downloads
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