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.

Employment Protection Legislation, Capital Investment and Access to Credit : evidence from Italy / F. Cingano, M. Leonardi, J. Messina, G. Pica. - In: ECONOMIC JOURNAL. - ISSN 0013-0133. - 126:595(2016 Sep 01), pp. 1798-1822. [10.1111/ecoj.12212]

Employment Protection Legislation, Capital Investment and Access to Credit : evidence from Italy

M. Leonardi;G. Pica
2016

Abstract

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.
Settore SECS-P/01 - Economia Politica
1-set-2016
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/258009
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