The Aggregate Implications of Size Dependent Distortions

Nicolas Roys

No 2016-24, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper examines the aggregate implications of size-dependent distortions. These regulations misallocate labor across firms and hence reduce aggregate productivity. It then considers a case-study of labor laws in France where firms that have 50 employees or more face substantially more regulation than firms that have less 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% that only applies to firm above 50 employees. Removing the regulation improves labor allocation across firms, leading in steady state to an increase in output per worker slightly less than 0.3%.

Keywords: Firm size distribution; regulation; threshold effects; reallocation (search for similar items in EconPapers)
JEL-codes: E23 O1 O40 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2016-10-05
New Economics Papers: this item is included in nep-mac and nep-tid
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Aggregate Implications of Size-Dependent Distortions (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2016-024

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DOI: 10.20955/wp.2016.024

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