Zombie firms and the growth of the living: the labor market channel

Antonio Accetturo (), Michele Cascarano () and Andrea Locatelli ()
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Antonio Accetturo: Bank of Italy
Michele Cascarano: Bank of Italy
Andrea Locatelli: Bank of Italy

No 1058, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Zombie firms may hinder growth not only via capital misallocation, but also by tightening local labor markets. This paper studies whether zombie prevalence weakens healthy firms' ability to expand employment when they face positive export-demand shocks. Using Italian firm-level data for 2015-23, we exploit the variation in the incidence of employment in zombie firms over active population at local labor market level and firm-specific exposure to exogenous export-demand shocks constructed with a shift-share design. We show that firms located in local labor markets with a higher share of employment in zombie firms exhibit a weaker employment response to foreign-demand shocks. Effects are strongest for white-collar workers and for micro and small firms, consistent with tighter constraints on scarce skills and greater reliance on local hiring. Results are robust to alternative zombie definitions and shock constructions.

Keywords: zombie firms; labor hoarding; labor misallocation; foreign demand shocks; local labor markets (search for similar items in EconPapers)
JEL-codes: D22 F16 G33 J23 R23 (search for similar items in EconPapers)
Date: 2026-09
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_1058_26

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