Firm size distribution in Italy and employment protection

Abstract

The number of Italian firms in function of the number of workers is well approximated by an inverse power law up to 15 workers but shows a clear downward deflection beyond this point, both when using old pre-1999 data and when using recent (2014) data. This phenomenon could be associated with employent protection legislation which applies to companies with more than 15 workers (the Statuto dei Lavoratori). The deflection disappears for agriculture firms, for which the protection legislation applies already above 5 workers. In this note it is estimated that a correction of this deflection could bring an increase from 3.9 to 5.8% in new jobs in firms with a workforce between 5 to 25 workers.