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Firm size distortions and the productivity distribution: evidence from France

Garicano, Luis, Lelarge, Claire and Van Reenen, John (2016) Firm size distortions and the productivity distribution: evidence from France. CEP Discussion Paper, No 1128. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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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 date 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.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2016 The Authors
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
Journal of Economic Literature Classification System: J - Labor and Demographic Economics > J8 - Labor Standards: National and International
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification and Scope, Age, Profit, and Sales
L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Identification Number: No 1128
Project and Funder Information:
Project IDFunder NameFunder ID
UNSPECIFIEDEconomic and Social Research Councilhttp://dx.doi.org/10.13039/501100000269
Funders: Economic and Social Research Council
Date Deposited: 09 Sep 2016 14:54
URL: http://eprints.lse.ac.uk/67684/

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