Employment Protection Legislation and the Size of Firms

By Pietro Garibaldi, Lia Pacelli, Andrea Borgarello. Social Science Research Network, 2003

133 citations recorded by the source corpus.

The existing literature ignores the fact that in most European countries the strictness of Employment Protection Legislation (EPL) varies across the firm size distribution. In Italy firms are obliged to rehire an unfairly dismissed worker only if they employ more than 15 employees. Theoretically, the paper solves a baseline model of EPL with threshold effects, and shows that firms close to the threshold are characterized by an increase in inaction and by a reluctance to grow. Empirically, the paper estimates transition probability matrices on firm level employment using a longitudinal data set based on Italian Social Security (INPS) records, and finds two results. First, firms close to the 15 employees threshold experience an increase in persistence of 1.5 percent with respect to a baseline statistical model. Second, firms with 15 employees are more likely to move backward than upward. Finally, the paper tests the effect of a 1990 reform which tightened the regulation on individual dismissal only for small firms. It finds that the persistence of small firms relative to large firms increased significantly. Overall, these threshold effects are significant and robust, but quantitatively small.

Subfields: Economics and Econometrics, General Health Professions, Public Administration

View Paper: https://www.semanticscholar.org/paper/e17f1c6205653e6dfed1157286559573a5337114

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In General Health Professions

In Public Administration

Citations in the corpus

The Effects of Employment Protection: Learning from Variable Enforcement (2003, background): “Some evidence in this regard for Italian firms is provided by [5].”
Testing for Manipulation in the Regression Discontinuity Design When the Running Variable Is Discrete (2016, methodology): “…to quantify distortions in firm behavior in response to policies based on firm-size thresholds, such as the Family and Medical Leave Act and the Affordable Care Act in the United States or employment protection laws in Europe (Waldfogel, 1999; Garibaldi et al., 2004; Schivardi and Torrini, 2008).”
Identifying the Effects of Firing Restrictions Through Size-Contingent Differences in Regulation (2008, result): “Garibaldi et al. (2004) obtain remarkably similar results from a relatively smaller sample of firms and using annual averages instead of individual firm data, therefore without controlling for age, industry and location of firms.”
Effects of Employment Protection on Worker and Job Flows: Evidence from the 1990 Italian Reform (2008, unknown): “Results of specifications including the third-level interaction between the postreform dummy, the small firm dummy and the pre-reform volatility of employment growth are reported in Column (6).”