SINTESI DI SERGIO DE NARDIS, MASSIMO MANCINI, CARMINE PAPPALARDO         
wp N. 38

 

 

 

Employment Protection Legislation and Firm Size Growth: an Analysis on the impact of the  15 Employment Threshold.

 

ABSTRACT

 

This paper analyzes the effect of labour market regulation on firm’s behaviour in Italy.

In particular, it focuses on the strictness of employment protection legislation in order to evaluate the impact on firms’ size growth. In ltaly, EPL is not enforced uniformly across firms: if they employ more than 15 employees are obliged the rehire an unfairly dismissed worker (article 18 of the  labour code).

With reference to a panel of manufacturing firms we test for the existence of discontinuities in  firms’ growth rates close to 15 employment threshold. We analyze ISAE data considering the period  1999-2002. Two Empirical exercises have been carried out using Evaluation Methods generally adopted in evaluating the outcomes of training programs. In the first estimate we taking into account self selection mechanism. Further evidence is provided assuming a deterministic selection process (sharp Regression Discontinuity Design).

In both empirical exercises we found significant but relatively small discouragement in firm’s growth caused by regulation. In the first empirical exercise the decrease of firm growth is estimated (ranging between 3 and 5%),  a little lower in the second exercise (ranging between 1,5 and 2,5 %).

 

 

 

 

JEL Classification: L25, L50

 

Key Words: Sme Enterprises, Gibrat Law, Endogeneity, Regression Discontinuity Design, Evaluation Methods.