Size-Dependent Regulations, Firm Size Distribution, and Reallocation

François Gourio, Nicolas A. Roys

NBER Working Paper No. 18657
Issued in December 2012
NBER Program(s):   DEV   LS   PE   PR

In France, firms with 50 employees or more face substantially more regulation than firms with less than 50. As a result, the size distribution of firms is visibly distorted: there are many firms with exactly 49 employees. We model the regulation as the combination of a sunk cost that must be paid the first time the firm reaches 50 employees, and a payroll tax that is paid each period thereafter when the firm operates with more than 50 employees. We estimate the model using indirect inference by fitting the discontinuity of the size distribution. The key finding is that the regulation is equivalent to a combination of a sunk cost approximately equal to about one year of an average employee salary, and a small payroll tax of 0.04%. Our structural model fits well the discontinuity in the size distribution. Removing the regulation improves labor allocation across firms, leading in steady-state to an increase in output per worker slightly less than 0.3%, holding the number of firms fixed. However, if firm entry is elastic, the steady-state gains are an order of magnitude smaller.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


This paper was revised on October 22, 2013

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18657

Published: François Gourio & Nicolas Roys, 2014. "Size‐dependent regulations, firm size distribution, and reallocation," Quantitative Economics, Econometric Society, vol. 5, pages 377-416, 07. citation courtesy of

Users who downloaded this paper also downloaded these:
Pierce and Schott w18655 The Surprisingly Swift Decline of U.S. Manufacturing Employment
Garicano, LeLarge, and Van Reenen w18841 Firm Size Distortions and the Productivity Distribution: Evidence from France
Anderson, Cesur, and Tekin w18656 Youth Depression and Future Criminal Behavior
Card and DellaVigna w18663 Revealed Preferences for Journals: Evidence from Page Limits
Alfaro and Chari w18650 Deregulation, Misallocation, and Size: Evidence from India
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us