| Number |
CREPEDP-158 |
| Publication Date |
July 2024; revised in September 2024, June 2025, and October 2025 |
| Title |
"Population Growth, Employment Protection, and Firm-level
Distortions"
|
| Author |
Cheng Chen and Takahiro Hattori
|
| Abstract |
Declining growth of working-age population and establishment-level input distortions are important real-world phenomena. In this paper, we develop an establishment
dynamics model to study how firing costs induce input distortions through the lens
of growth of working-age population. We find that the negative impact of firing costs
on aggregate productivity and output is amplified when the growth rate of working-age population declines. This is because slower growth of labor supply leads to fewer
entering establishments 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 establishment patterns consistent
with stylized facts from the literature. We then conduct counterfactual analyses, showing that a decline in growth of working-age population has a quantitatively significant
impact on establishment entry and establishment-level input distortions. Finally, we
provide evidence using Japanese census data to support the model’s predictions on how
the growth of working-age population influences establishment entry and labor input
distortions.
|
| Keywords |
growth of working-age population, employment protection and firing
cost, establishment-level distortions
|
| Other information |
Paper in English (52 pages) |