Firm Size Distortions and the Productivity Distribution: Evidence from France

By Luis Garicano, Claire Lelarge, John Van Reenen. Social Science Research Network, 2013

488 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/6d71777495f5dfff0eebfb3573eb2993362d26d7

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Citations in the corpus

The Firm Size Distribution Across Countries and Skill-Biased Change in Entrepreneurial Technology (2018, methodology): “As in the previous section, all other parameters are (37)In fact, Gourio and Roys (2014) and Garicano et al. (2017) show their effect on the French firm size distribution.”
The Dynamics of Employment Growth: New Evidence from 18 Countries (2014, background): “Both theoretical models (e.g., Guner et al., 2008) and empirical evidence (Garicano et al., 2013) suggest that the impact of these policies on aggregate productivity measures, the equilibrium number of establishments and their size distribution might be non-negligible.”
The Missing “Missing Middle” (2014, background): “For example, the classic work by Harris and Todaro (1970) posits that formal firms are forced to pay wages that are above the market clearing wage, or are subject to a variety of regulations that small firms are exempt from.”
What Drives the Dynamics of Business Growth (2016, background): “Labour market regulations that only apply to firms above a certain size also distort the incentives of employers to grow above that particular threshold (Garicano et al. 2012).”
In with the Big, Out with the Small (2014, unknown): “Conversely, Garicano, LeLarge, and Van Reenen ( 2016 ) show that countries like France which retain size-contingent labor regulations constrain firms from reaching optimal size ( and consequently optimal productivity levels.”
Effectiveness of Fiscal Incentives for R&D: Quasi-experimental Evidence (2019, methodology): “For variables of interest characterized with a long right-tail and a mass-point at zero, Silva and Tenreyro (2006) propose a simple Poisson Pseudo-Maximum-Likelihood (PPML) estimator (following Gourieroux et al. (1984)) to achieve consistency in estimating the parameters of a log-linear model. In pa”
JEEA‐FBBVA LECTURE 2013: THE NEW EMPIRICAL ECONOMICS OF MANAGEMENT (2014, background): “Garicano, Lelarge, and Van Reenen (2013) discuss how the presence of many regulatory " taxes " that begin when the firm reaches 50 employees implies a broken power law exactly as described by the data.”
Public policy to promote entrepreneurship: a call to arms (2016, unknown): “Figure 4, taken from Garicano et al. (2012), plots the firm size distribution as a function of the number of employees. The figure clearly shows a spike in the number of 49 person firms, and an utter lack of 50 or 51 person firms. For the purposes of comparison, the figure also plots the US firm siz”
Additionality or crowding-out? An overall evaluation of public R&D subsidy on private R&D expenditure (2016, background): “This classification finds justification in the French industrial structure that is dominated by SMEs: enterprises with less than 50 employees account for more than 95% of the total firm population (e.g., Garicano et al., 2013).”
Connecting to Power: Political Connections, Innovation, and Firm Dynamics (2018, background): “…Schumpeterian creative destruction model where firms face regulatory burdens.2 As in Restuccia and Rogerson (2008); Hsieh and Klenow (2009); Garicano et al. (2016), we model these regulatory burdens as wedges in the production process of a firm that may be alleviated by connecting with…”