Firm Size Distortions and the Productivity Distribution: Evidence from France

60 Pages Posted: 9 Mar 2013

See all articles by Luis Garicano

Luis Garicano

Centre for Economic Policy Research (CEPR); IE Business School

Claire Lelarge

University of Paris-Saclay; Banque de France - Economic Study and Research Division; Centre for Economic Policy Research (CEPR)

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

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 this to France where many labor laws start to bind on firms with exactly 50 or more employees. Using data on the population of firms between 2002 and 2007 period, we structurally estimate the key parameters of our model to construct counterfactual size, productivity and welfare distributions. With flexible wages, the deadweight loss of the regulation is below 1% of GDP, but when wages are downwardly rigid welfare losses exceed 5%. We also show, regardless of wage flexibility, that 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

JEL Classification: L11, L51, J8, L25

Suggested Citation

Garicano, Luis and Garicano, Luis and Lelarge, Claire and Lelarge, Claire and Van Reenen, John Michael, Firm Size Distortions and the Productivity Distribution: Evidence from France. IZA Discussion Paper No. 7241, Available at SSRN: https://ssrn.com/abstract=2230803 or http://dx.doi.org/10.2139/ssrn.2230803

Luis Garicano (Contact Author)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IE Business School ( email )

Calle María de Molina, 11
Madrid, 28006
Spain

Claire Lelarge

University of Paris-Saclay ( email )

55 Avenue de Paris
Versailles, 78000
France

Banque de France - Economic Study and Research Division ( email )

31, rue Croix des Petits Champs
75049 Paris Cedex 01
FRANCE

HOME PAGE: http://https://sites.google.com/site/clairelelargeeconomics/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

John Michael Van Reenen

London School of Economics - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6976 (Phone)
+44 20 7955 6848 (Fax)

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom
+44 20 7240 6740 (Phone)
+44 20 7240 6136 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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