Firm Size Distribution and EPL in Italy

Fabiano Schivardi and Roberto Torrini

William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: We study the role of employment protection legislation (EPL) in explaining the relative small average size of Italian firms. We construct a simple model that shows that the smooth relation between size and growth probability is disturbed in proximity of the thresholds at which EPL applies di.erentially. We use a comprehensive dataset of all Italian firms between 1986 and 1998 to estimate the e.ects of EPL in terms of discouraging small firms from growing. We then construct a stochastic transition matrix for firm size that, together with the estimates, allows for a quantitative evaluation of the e.ects of EPL in the long run. Our results show that EPL does influence firm size distribution, but that its e.ects are quantitatively modest: average firm size would increase by less than 1% when removing the threshold e.ect. In terms of policy, these findings suggest that changes in EPL are not likely to have a large impact on the propensity of small firms to grow

Keywords: Firm size distribution; Employment protection; Firing costs (search for similar items in EconPapers)
JEL-codes: D21 J65 L11 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2003-09-01
New Economics Papers: this item is included in nep-ent and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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