Firing costs, misallocation, and aggregate productivity

Rocha, José María Da; Tavares, Marina Mendes; Restuccia, Diego

doi:10.1016/j.jedc.2018.09.005

“…Hsieh and Klenow (2009) show that the resulting misallocation accounts for a significant fraction of the differences in aggregate productivity between the US, China and India and Bartelsman et al (2013) confirm this finding using micro data from OECD countries. 7 Boedo and Mukoyama (2012) and Da-Rocha et al (2019) have shown firing costs hinder job reallocation and reduce allocative efficiency and aggregate productivity. The additional effect of barriers to reallocation when productivity is endogenous is also the focus of Gabler and Poschke (2013), Da-Rocha et al (2019), and Bento and Restuccia (2017).…”

Section: Related Literaturementioning

confidence: 99%

The Impact of Regulation on Innovation

Aghion

¹

,

Bergeaud

²

2021

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Does regulation affect the pace and nature of innovation and if so, by how much? We build a tractable and quantifiable endogenous growth model with size-contingent regulations. We apply this to population administrative firm panel data from France, where many labor regulations apply to firms with 50 or more employees. Nonparametrically, we find that there is a sharp fall in the fraction of innovating firms just to the left of the regulatory threshold. Further, a dynamic analysis shows a sharp reduction in the firm's innovation response to exogenous demand shocks for firms just below the regulatory threshold. We then quantitatively fit the parameters of the model to the data, finding that innovation at the macro level is about 5.4% lower due to the regulation, a 2.2% consumption equivalent welfare loss. Four-fifths of this loss is due to lower innovation intensity per firm rather than just a misallocation towards smaller firms and lower entry. We generalize the theory to allow for changes in the direction of R&D, and find that regulation's negative effects only matter for incremental innovation (as measured by citations and text-based measures of novelty). A more regulated economy may have less innovation, but when firms do innovate they tend to "swing for the fence" with more radical (and labor saving) breakthroughs.

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“…Hsieh and Klenow (2009) show that the resulting misallocation accounts for a significant fraction of the differences in aggregate productivity between the US, China and India and Bartelsman et al (2013) confirm this finding using micro data from OECD countries. 7 Boedo and Mukoyama (2012) and Da-Rocha et al (2019) have shown firing costs hinder job reallocation and reduce allocative efficiency and aggregate productivity.…”

Section: Related Literaturementioning

confidence: 99%

The Impact of Regulation on Innovation

Aghion,

Bergeaud,

Van Reenen

2023

American Economic Review

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We present a framework that can be used to assess the equilibrium impact of regulation on endogenous innovation with heterogeneous firms. We implement this model using French firm-level panel data, where there is a sharp increase in the burden of labor regulations on companies with 50 or more employees. Consistent with the model’s qualitative predictions, we find a fall in the fraction of innovating firms just to the left of the regulatory threshold. Furthermore, we find a reduction in the innovation response of firms to demand shocks just below the threshold. Regulation reduces aggregate innovation by 5.7 percent. (JEL D22, K31, L11, L25, L51, O31, O34)

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“…Hsieh and Klenow (2009) show that the resulting misallocation accounts for a significant fraction of the differences in aggregate productivity between the US, China and India and Bartelsman et al (2013) confirm this finding using micro data from OECD countries. 7 Boedo and Mukoyama (2012) and Da-Rocha et al (2019) have shown firing costs hinder job reallocation and reduce allocative efficiency and aggregate productivity. The additional effect of barriers to reallocation when productivity is endogenous is also the focus of Gabler and Poschke (2013), Da-Rocha et al (2019), and Bento and Restuccia (2017).…”

Section: Related Literaturementioning

confidence: 99%

“…7 Boedo and Mukoyama (2012) and Da-Rocha et al (2019) have shown firing costs hinder job reallocation and reduce allocative efficiency and aggregate productivity. The additional effect of barriers to reallocation when productivity is endogenous is also the focus of Gabler and Poschke (2013), Da-Rocha et al (2019), and Bento and Restuccia (2017). Samaniego (2006) highlights the effects of firing costs in a model with productivity growth.…”

Section: Related Literaturementioning

confidence: 99%

The Impact of Regulation on Innovation

Submitter¹,

Aghion

²

,

Bergeaud

³

2021

SSRN Journal

0

View full text Add to dashboard Cite

Does regulation affect the pace and nature of innovation and if so, by how much? We build a tractable and quantifiable endogenous growth model with size-contingent regulations. We apply this to population administrative firm panel data from France, where many labor regulations apply to firms with 50 or more employees. Nonparametrically, we find that there is a sharp fall in the fraction of innovating firms just to the left of the regulatory threshold. Further, a dynamic analysis shows a sharp reduction in the firm's innovation response to exogenous demand shocks for firms just below the regulatory threshold. We then quantitatively fit the parameters of the model to the data, finding that innovation at the macro level is about 5.4% lower due to the regulation, a 2.2% consumption equivalent welfare loss. Four-fifths of this loss is due to lower innovation intensity per firm rather than just a misallocation towards smaller firms and lower entry. We generalize the theory to allow for changes in the direction of R&D, and find that regulation's negative effects only matter for incremental innovation (as measured by citations and text-based measures of novelty). A more regulated economy may have less innovation, but when firms do innovate they tend to "swing for the fence" with more radical (and labor saving) breakthroughs.

show abstract

Firing costs, misallocation, and aggregate productivity

Cited by 13 publications

References 30 publications

The Impact of Regulation on Innovation

The Impact of Regulation on Innovation

The Impact of Regulation on Innovation

The Impact of Regulation on Innovation

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