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Employment Protection Legislation and the Size of Firms

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Author Info
Garibaldi, Pietro () (Bocconi University, CEPR, fRDB and IZA Bonn)
Pacelli, Lia (University of Turin and LABORatorio R. Rivelli)
Borgarello, Andrea (LABORatorio R. Rivelli)

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Abstract

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 787.

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Length: 36 pages
Date of creation: May 2003
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Handle: RePEc:iza:izadps:dp787

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Related research
Keywords: employment protection legislation firm size

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Find related papers by JEL classification:
J4 - Labor and Demographic Economics - - Particular Labor Markets

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March. [Downloadable!] (restricted)
  2. Wagner, Joachim & Schnabel, Claus & Kölling, Arnd, 2001. "Threshold Values in German Labor Law and Job Dynamics in Small Firms: The Case of the Disability Law," IZA Discussion Papers 386, Institute for the Study of Labor (IZA). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Adriana Kugler & Giovanni Pica, 2003. "Effects of Employment Protection and Product Market Regulations on the Italian Labor Market," Economics Working Papers 722, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  2. Tito Boeri & Juan F. Jimeno, . "The Effects of Employment Protection: Learning from Variable Enforcement," Working Papers 252, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  3. Guner, Nezih & Ventura, Gustavo & Xu, Yi, 2007. "Macroeconomic Implications of Size-Dependent Policies," CEPR Discussion Papers 6138, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Burgert, Derik, 2006. "Einstellungschancen von Älteren – Wie wirkt der Schwellenwert im Kündigungsschutz?," MPRA Paper 5846, University Library of Munich, Germany. [Downloadable!]
  5. Fabiano Schivardi & Roberto Torrini, 2004. "Threshold Effects and Firm Size: the Case of Firing Costs," CEP Discussion Papers dp0633, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  6. Lena Koller & Claus Schnabel & Joachim Wagner, 2005. "Arbeitsrechtliche Schwellenwerte und betriebliche Arbeitsplatzdynamik: Eine empirische Untersuchung am Beispiel des Schwerbehindertengesetzes," Working Paper Series in Economics 13, University of Lüneburg, Institute of Economics. [Downloadable!]
  7. Marco Leonardi & Giovanni Pica, 2007. "Employment protection legislation and wages," Working Paper Series 778, European Central Bank. [Downloadable!]
    Other versions:
  8. Kugler, Adriana D. & Pica, Giovanni, 2005. "Effects of Employment Protection on Worker and Job Flows: Evidence from the 1990 Italian Reform," CEPR Discussion Papers 5256, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  9. Roberto Basile & Sergio de Nardis, 2004. "Non linearità e dinamica della dimensione d'impresa in Italia," ISAE Working Papers 40, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
    Other versions:
  10. Adriana Kugler adkugler@uh.edu & Giovanni Pica, 2005. "The Effects of Employment Protection on the Italian Labour Market," CSEF Working Papers 135, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
  11. Kugler, Adriana & Pica, Giovanni, 2003. "The Effects Of Employment Protection and Product Market Regulations on The Italian Labor Market," Discussion Paper Series In Economics And Econometrics 0310, Economics Division, School of Social Sciences, University of Southampton. [Downloadable!]
    Other versions:
  12. Fabiano Schivardi & Roberto Torrini, 2003. "Firm Size Distribution and EPL in Italy," William Davidson Institute Working Papers Series 2003-613, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  13. Burgert, Derik, 2005. "The Impact of German Job Protection Legislation on Job Creation in Small Establishments - An Application of the Regression Discontinuity Design," MPRA Paper 5971, University Library of Munich, Germany. [Downloadable!]
  14. Sa, Filipa, 2008. "Does Employment Protection Help Immigrants? Evidence from European Labor Markets," IZA Discussion Papers 3414, Institute for the Study of Labor (IZA). [Downloadable!]
  15. Sergio de Nardis & Massimo Mancini & Carmine Pappalardo, 2003. "Regolazione del mercato del lavoro e crescita dimensionale delle imprese: Una verifica sull'effetto soglia dei 15 dipendenti," ISAE Working Papers 38, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
  16. Guiso, Luigi & Pistaferri, Luigi & Schivardi, Fabiano, 2006. "Labour Adjustment: Disentangling Firing and Mobility Costs," CEPR Discussion Papers 5787, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  17. Burgert, Derik, 2005. "Schwellenwerte im deutschen Kündigungsschutzrecht Ein Beschäftigungshindernis für kleine Unternehmen?," MPRA Paper 5969, University Library of Munich, Germany. [Downloadable!]
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