This article estimates the causal impact of dismissal costs on capital deepening and productivity, exploiting a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees, leaving firing costs unchanged for larger firms. We show that the rise in firing costs induced an increase in the capital-labour ratio and a decline in total factor productivity in small firms relative to larger firms. Our results indicate that capital deepening was more pronounced at the low-end of the capital distribution - where the reform hit arguably harder - and among firms endowed with a larger amount of liquid resources. We also find that stricter Employment Protection Legislation (EPL) raised the share of high-tenure workers, which suggests a complementarity between firm-specific human capital and physical capital in moderate EPL environments.
|Titolo:||Employment Protection Legislation, Capital Investment and Access to Credit : evidence from Italy|
|Settore Scientifico Disciplinare:||Settore SECS-P/01 - Economia Politica|
|Data di pubblicazione:||1-set-2016|
|Digital Object Identifier (DOI):||10.1111/ecoj.12212|
|Appare nelle tipologie:||01 - Articolo su periodico|