Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/301996.2 
Year of Publication: 
2025
Series/Report no.: 
IWH Discussion Papers No. 17/2023
Version Description: 
This version: 03.03.2025
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% points higher annual employment growth, a 1.1% points higher annual exit probability, and 10% points higher annual productivity growth over the target period. Structural estimates reveal substantial mis-allocation 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
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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2 10419/301996.2 This version: 03.03.2025
1 10419/301996 This version: 19.08.2024

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