Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/301996 
Year of Publication: 
2024
Series/Report no.: 
IWH Discussion Papers No. 17/2023
Version Description: 
This version: 19.08.2024
Publisher: 
Halle Institute for Economic Research (IWH), Halle (Saale)
Abstract: 
We examine effects of government-imposed employment targets on firm behavior. Theoretically, such policies create "polarization," causing low-productivity firms to exit the market while others temporarily distort their employment upward. Dynamically, firms are incentivized to improve productivity to meet targets. Using novel data from East German firms post-privatization, we find that firms with binding employment targets experienced 25% higher annual employment growth, a 1.1% higher annual exit probability, and 10% higher annual productivity growth over the target period. Structural estimates reveal substantial misallocation of labor across firms and that subsidizing productivity growth would yield twice the long term increases in employment.
Subjects: 
industrial policy
privatizations
productivity
size-dependent regulations
JEL: 
D22
D24
J08
L25
Document Type: 
Working Paper

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