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The Aggregate Implications of Size-Dependent Distortions

Nicolas Roys

Review, 2018, vol. 100, issue 1, 73-85

Abstract: This article examines the aggregate implications of size-dependent distortions. These regulations misallocate labor across firms and hence reduce aggregate productivity. The author then considers a case study of labor laws in France, where firms with 50 employees or more face substantially more regulation than firms with fewer than 50. The size distribution of firms is visibly distorted by these regulations: There are many firms with exactly 49 employees. A quantitative model is developed with a payroll tax of 0.15 percent that applies only to firms with more than 50 employees. Removing the regulation while holding total employment constant leads to an increase in output of around 0.3 percent.

JEL-codes: E23 O1 O40 (search for similar items in EconPapers)
Date: 2018
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Working Paper: The Aggregate Implications of Size Dependent Distortions (2016) Downloads
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DOI: 10.20955/r.2018.73-85

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