Firm Size Distribution and Epl in Italy

42 Pages Posted: 13 Oct 2003

See all articles by Fabiano Schivardi

Fabiano Schivardi

Luiss Guido Carli - Department of Economics and Finance; Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR)

Roberto Torrini

Bank of Italy

Date Written: September 2003

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 differentially. We use a comprehensive dataset of all Italian firms between 1986 and 1998 to estimate the effects 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 effects of EPL in the long run. Our results show that EPL does influence firm size distribution, but that its effects are quantitatively modest: average firm size would increase by less than 1% when removing the threshold effect. 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

JEL Classification: J65, D21, L11

Suggested Citation

Schivardi, Fabiano and Torrini, Roberto, Firm Size Distribution and Epl in Italy (September 2003). Available at SSRN: https://ssrn.com/abstract=445401 or http://dx.doi.org/10.2139/ssrn.445401

Fabiano Schivardi (Contact Author)

Luiss Guido Carli - Department of Economics and Finance ( email )

Viale Romania 32
Rome, Rome 00187
Italy

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Roberto Torrini

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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