| Number |
CREPEDP-158 |
| Publication Date |
July 2024; revised in September 2024, and June 2025 |
| Title |
"Population Growth, Employment Protection, and Firm-level
Distortions"
|
| Author |
Cheng Chen and Takahiro Hattori
|
| Abstract |
Declining population growth and firm-level input distortions are important real-
world phenomena. In this paper, we develop a firm dynamics model to study how firing
costs induce input distortions through the lens of population growth. We find that the
negative impact of firing costs on aggregate productivity and output is amplified when
the population growth rate declines. This is because slower population growth leads to
fewer entering firms and more persistent incumbents, which are less likely to exit and
therefore more affected by firing costs. Using Japanese establishment-level data, we
calibrate the model and reproduce age-specific firm patterns consistent with stylized
facts from the literature. We then conduct counterfactual analyses, showing that a
decline in population growth has a quantitatively significant impact on firm entry and
firm-level input distortions. Finally, we provide evidence using Japanese census data
to support the model's predictions on how population growth in
uences firm entry and
labor input distortions.
|
| Keywords |
population growth, employment protection and firing cost, firm-level
distortions
|
| Other information |
Paper in English (44 pages) |