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Firm size distortions and the productivity distribution: evidence from France

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

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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% variable tax on labor. In our baseline case with French levels of partial real wage inflexibility welfare costs of the regulations are 3.4% of GDP (falling to 1.3% if real wages were perfectly flexible downwards). The main losers from the regulation are workers - and to a lesser extent, large firms - and the main winners are small firms.

Keywords: firm size; productivity; labor regulation; power law (search for similar items in EconPapers)
JEL-codes: D24 J08 J31 K31 L11 L25 L51 (search for similar items in EconPapers)
Date: 2016-11-01
New Economics Papers: this item is included in nep-cse, nep-eff, nep-ind, nep-sbm and nep-tid
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Published in American Economic Review, 1, November, 2016, 106(11), pp. 3439-3479. ISSN: 0002-8282

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http://eprints.lse.ac.uk/66765/ Open access version. (application/pdf)

Related works:
Journal Article: Firm Size Distortions and the Productivity Distribution: Evidence from France (2016) Downloads
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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