Why small isn’t always beautiful: labor regulations and firm growth

Regulations often have unintended costs as well as intended benefits. France has a large number of labor market regulations that bind when a firm has 50 or more employees. These regulations are intended to help workers, but they also act as a tax on large firms. This discourages firms near the threshold from growing larger and producing more output. We calculate that these French labor regulations depress overall economic output by over 3%.

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