Identifying the Effects of Firing Restrictions Through Size-Contingent Differences in Regulation

50 Pages Posted: 29 Dec 2005

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: October 2005

Abstract

We study the effects of the more stringent employment protection legislation (EPL) that applies in Italy to firms with over 15 employees. We consider firms' propensity to grow when close to that threshold and changes in employment policies when they pass it. Using a comprehensive matched employer-employees dataset, we find that the probability of firms' growth is reduced by around 2 percentage points near the threshold. Using the stochastic transition matrix for firm size, we compute the long-run effects of EPL on the size distribution, finding that they are quantitatively modest. We also find that, contrary to the implications of more stringent firing restrictions, workers in firms just above the threshold have on average less stable employment relations than those just below it. We document that this is because firms above the threshold make greater use of flexible employment contracts, arguably to circumvent the stricter regulation on open-end contracts.

Keywords: Firing costs, firm size distribution, employment policies, matched data

JEL Classification: D21, J63, J65, L11

Suggested Citation

Schivardi, Fabiano and Torrini, Roberto, Identifying the Effects of Firing Restrictions Through Size-Contingent Differences in Regulation (October 2005). CEPR Discussion Paper No. 5303, Available at SSRN: https://ssrn.com/abstract=872786

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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