Skip to main content
Article thumbnail
Location of Repository

Threshold effects and firm size: the case of firing costs

By Fabiano Schivardi and Roberto Torrini


We study the role of employment protection legislation (EPL) in determining firm size distribution. In many countries the provisions of EPL are more stringent for firms above certain size thresholds. We construct a simple model that shows that the smooth relation between size and growth probability is interrupted in proximity of the thresholds at which EPL applies differentially. We use a comprehensive longitudinal dataset of all Italian firms, a country with an important threshold at 15 employees, to estimate the effects of EPL in terms of discouraging small firms from growing. We find that the probability of firms ' growth in the proximity of the threshold is reduced by around 2 percentage points. Using the stochastic transition matrix for firm size, we compute the long-run effects of EPL on size distribution. We find that average firm size would increase by less than 1% in steady state when removing the threshold; a quantitatively modest effect

Topics: HD Industries. Land use. Labor
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Year: 2004
OAI identifier:
Provided by: LSE Research Online

Suggested articles


  1. (1975). A First Course in Stochastic Processes. Second Edition, doi
  2. (2003). Comparative Analysis of Firm Demographics and Survival: Micro-Macro Evidence for the OECD Countries’, OECD Economic Department Working Paper, doi
  3. (2001). Consequences of Employment Protection? The Case of the American with Disabilities Act’, doi
  4. (1999). Employment Outlook doi
  5. (2000). Employment Protection in Industrialised Countries: The Case for New Indicators’, doi
  6. (2002). Employment Protection, International Specialization, and Innovation’, doi
  7. (1992). Entry, Exit, and Firm Dynamics in Long Run doi
  8. (1990). Firing Costs and Labor Demand: How Bad is Eurosclerosis?’, doi
  9. (2003). Firm Size Distribution and Growth’, doi
  10. (1999). I vantaggi competitivi della piccola impresa nell’utilizzo del fattore lavoro: formazione, costi, obblighi e norme,
  11. (1999). Il diritto del lavoro e le soglie dimensionali: presentazione di un quadro sinottico’,
  12. (1996). Il lavoro e il mercato, doi
  13. (2000). Labor Market Rigidities, Unemployment and Growth’, doi
  14. (1987). Menu Costs and the Neutrality of Money’, doi
  15. (1978). On Size Distribution and Growth’, doi
  16. (2003). Outsourcing at Will: The Contribution of Un just Dismissal Doctrine to the Growth of Employment Outsourcing’, doi
  17. (1982). Selection and the Evolution of doi
  18. (2003). The Effects of Employment Protection: Learning from Variable Enforcement’, doi
  19. (2004). The Employment Consequences of Wrongful-Discharge Laws: Large, Small or None at All?’, Forthcoming in American Economic Review. doi
  20. (1911). The Theory of Economic Development, doi
  21. (2004). Threshold Effects of Dismissal Protection Legislation in

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.