Barriers to Reallocation and Economic Growth: The Effects of Firing Costs
- (pp. 235-70)
Abstract
We study how factors that hinder the reallocation of inputs across firms influence aggregate productivity growth. We extend Hopenhayn and Rogerson's (1993) firm-dynamics model to allow for endogenous innovation. We evaluate the effects of firing taxes on reallocation, innovation, and productivity growth. We find firing taxes can have opposite effects on entrants' innovation and incumbents' innovation, and the overall outcome depends on the relative strengths of these forces. In the entrant-driven growth calibration, firing taxes reduce aggregate productivity growth, whereas aggregate productivity growth increases in the incumbent-driven growth calibration.Citation
Mukoyama, Toshihiko, and Sophie Osotimehin. 2019. "Barriers to Reallocation and Economic Growth: The Effects of Firing Costs." American Economic Journal: Macroeconomics, 11 (4): 235-70. DOI: 10.1257/mac.20170170Additional Materials
JEL Classification
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- E23 Macroeconomics: Production
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- J23 Labor Demand
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J62 Job, Occupational, and Intergenerational Mobility; Promotion
- K31 Labor Law
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