Size-dependent regulations, firm size distribution, and reallocation

Abstract

In France, firms that have 50 employees or more face substantially more regulation than firms that have less than 50. As a result, the size distribution of firms is visibly distorted: there are many firms with exactly 49 employees. We model the regulation as the combination of a sunk cost that must be paid the first time the firm reaches 50 employees and a payroll tax that is paid each period thereafter when the firm operates with more than 50 employees. We estimate the model using indirect inference by fitting the discontinuity of the size distribution. The key finding is that the regulation is equivalent to a combination of a sunk cost approximately equal to about 1 year of an average employee salary and a small payroll tax of 0.04%. Our structural model fits well the discontinuity in the size distribution. Removing the regulation improves labor allocation across firms, leading in steady state to an increase in output per worker slightly less than 0.3%, holding the number of firms fixed. However, if firm entry is elastic, the steady‐state gains are an order of magnitude smaller.

Firm Size Distortions and the Productivity Distribution: Evidence from France

“…Factor prices are treated as exogenous, common to all firms and time invariant. 46 An alternative way to dynamically model the regulatory tax would be to consider it as a purely sunk cost (or sunk cost plus variable cost) as in Gourio and Roys (2014). This has similar predictions on the firm size distribution and simplifies the dynamics compared to the model presented here (as there are no convex adjustment costs).…”

The Effects of Size-Based Regulation on Small Firms: Evidence from Vat Threshold

“…Guner et al (2008), and Gourio and Roys (2014)). In the Finnish context, the VAT threshold could hinder the growth of small businesses if firms avoid exceeding the threshold for a prolonged period of time.…”

Le comportement du dirigeant de PME français face au seuil des 50 salariés1

“…Figure 1. Répartition des entreprises françaises par effectif (Gourio et Roy, 2014) L'absence de consensus autour de l'impact des seuils sociaux sur la croissance des entreprises montre que des études supplémentaires sont nécessaires pour mieux appréhender ce phénomène, notamment pour clarifier la nature des seuils (Ceci-Renaud et Chevalier, 2010). C'est précisément la raison d'être de cette recherche, dont l'objectif est de mieux comprendre l'impact des seuils sociaux sur les intentions et comportements de dirigeants de PME.…”