Evaluating the Impact of Labour Market Regulation on the Size Growth of Firms
35 Pages Posted: 4 Jan 2005
Date Written: December 20, 2004
The Italian law on unfair firing (art. 18 of Statuto dei Lavoratori) discriminates according to whether the firm is below or above the threshold of 15 employees. In this paper we investigate the effects of the law on size growth of firms. The database consists of company level information collected by an ad hoc survey conducted by ISAE on a sample of industrial firms. The approach used is based on the methodology known as Regression Discontinuity Design. The analysis is built around two estimation exercises. In the first (sharp RDD), firms are assigned to the subset above (below) the threshold established by the law according to whether, in the base year, the total number of employees is greater or less than 15 (deterministic rule, rigid application of the law). In the second exercise, we introduce the hypothesis that the selection is partly stochastic because it is influenced by non-observable factors largely endogenous to the firms. The evidence of two empirical exercises indicates a negative impact of approximately 2% on the size growth of firms close to the threshold.
Keywords: SME, endogeneity, Regression Discontinuity Design, evaluation
JEL Classification: L25, L50
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