Firing Costs, Misallocation, and Aggregate Productivity

Jose-Maria Da-Rocha, Marina Tavares and Diego Restuccia
Authors registered in the RePEc Author Service: Jose Maria Da Rocha

Working Papers from University of Toronto, Department of Economics

Abstract: We assess the quantitative impact of firing costs on aggregate total factor productivity (TFP) in a dynamic general-equilibrium framework where the distribution of establishment-level productivity is not invariant to the policy. We show that firing costs not only generate static misallocation, but also a worsening of the productivity distribution substantially contributing to large aggregate TFP losses. In a calibrated version of the model, firing costs equivalent to 5 years' wages imply a drop in TFP of more than 20 percent. Consistent with the existing literature on firing costs, static misallocation only generates a small drop in TFP, accounting for around 20 percent of the total loss, whereas the remaining 80 percent arises from the endogenous change in the productivity distribution.

Keywords: firing costs; inaction; misallocation; establishments; productivity. (search for similar items in EconPapers)
JEL-codes: E1 E6 O1 O4 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2016-05-19
New Economics Papers: this item is included in nep-dge, nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Firing costs, misallocation, and aggregate productivity (2019)
Working Paper: Firing Costs, Misallocation, and Aggregate Productivity (2016)
Working Paper: Firing Costs, Misallocation, and Aggregate Productivity (2016)
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