Identifying the Effects of Firing Restrictions Through Size-Contingent Differences in Regulation

Fabiano Schivardi and Roberto Torrini

No 5303, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the effects of the more stringent employment protection legislation (EPL) that applies in Italy to firms with over 15 employees. We consider firms' propensity to grow when close to that threshold and changes in employment policies when they pass it. Using a comprehensive matched employer-employees dataset, we find that the probability of firms' growth is reduced by around 2 percentage points near the threshold. Using the stochastic transition matrix for firm size, we compute the long-run effects of EPL on the size distribution, finding that they are quantitatively modest. We also find that, contrary to the implications of more stringent firing restrictions, workers in firms just above the threshold have on average less stable employment relations than those just below it. We document that this is because firms above the threshold make greater use of flexible employment contracts, arguably to circumvent the stricter regulation on open-end contracts.

Keywords: Firing costs; Firm size distribution; Employment policies; Matched data (search for similar items in EconPapers)
JEL-codes: D21 J63 J65 L11 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-reg
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Citations: View citations in EconPapers (8)

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Journal Article: Identifying the effects of firing restrictions through size-contingent differences in regulation (2008)
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