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dc.contributor.authorPOSCHKE, Markus
dc.date.accessioned2007-01-12T09:18:24Z
dc.date.available2007-01-12T09:18:24Z
dc.date.issued2006
dc.identifier.issn1725-6704
dc.identifier.urihttp://hdl.handle.net/1814/6448
dc.description.abstractThis paper analyzes the effect of firing costs on aggregate productivity growth. For this purpose, a model of endogenous growth through selection and imitation is developed. It is consistent with recent evidence on firm dynamics and the contribution of firm entry and exit to aggregate productivity growth. In this model, growth arises endogenously via market selection among heterogeneous incumbent firms. It is sustained as entrants imitate the best incumbents. In this framework, besides inducing misallocation of labor and reducing entry, firing costs also discourage exit of low-productivity firms. This makes selection less severe and reduces growth. However, exempting exiting firms from firing costs speeds up the exit of inefficient firms and thereby growth, with little change in job turnover. These effects are stronger in sectors where firms face larger idiosyncratic shocks, as in services, fitting evidence that here, EU-US growth rate differences are largest. Introducing firing costs of one year’s wages in a benchmark economy calibrated to the US business (services) sector then leads to 0.1 (0.3) points lower growth. A brief empirical analysis of the impact of firing costs on the size of exiting firms supports the model’s conclusions.en
dc.format.extent694754 bytes
dc.format.mimetypeapplication/pdf
dc.language.isoenen
dc.publisherEuropean University Institute
dc.relation.ispartofseriesEUI ECOen
dc.relation.ispartofseries2006/35en
dc.rightsinfo:eu-repo/semantics/openAccess
dc.subjectE24en
dc.subjectJ63en
dc.subjectJ65en
dc.subjectL11en
dc.subjectL16en
dc.subjectO40en
dc.subjectendogenous growth theoryen
dc.subjectfirm dynamicsen
dc.subjectlabor market regulationen
dc.subjectfiring costsen
dc.subjectentry and exiten
dc.subjectfirm selectionen
dc.titleEmployment Protection, Firm Selection, and Growthen
dc.typeWorking Paperen
dc.neeo.contributorPOSCHKE|Markus|aut|
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