Monday, January 7, 2013

French firms with exactly 9 or 49 employees


In many countries, small firms face lighter regulation than large firms. Regulation, broadly defined, takes many forms, from hygiene and safety rules, to mandatory elections of employee representatives, to larger payroll taxes. The rationale for exempting small firms from some regulations is that the compliance cost is too high relative to their sales. A necessary consequence, however, is that regulations are phased in as the firm grows, generating an implicit marginal tax. ...[I]n the case of France, a first important set of regulations applies to firms with more than 10 employees, and a second important set of regulations applies to firms with more than 50 employees. As a result, the firm size distribution is distorted, with few firms with exactly 10 (or 50) employees and a large number of firms with 9 (or 49) employees.
--François Gourio and Nicolas Roys, "Size-dependent regulations, firm size distribution, and reallocation," on regulatory constraints on firm growth