Why Does Employment Legislation Not Damage Small Firms?

Abstract

Business rhetoric and conventional theory expect that employment regulations will have negative effects on small firms. Prior research has shown that effects are quite rare, but has not explained why. Case studies of 18 firms from three sectors identified four explanations. (1) Perceptions of effects tend to be broad and general, rather than reflections of concrete experience. (2) ‘The law’ is not uniform, with older laws being largely taken for granted. (3) Effects depend on competitive conditions, which are more important influences on firms than are regulations; where conditions are benign, regulations can be absorbed, but in other circumstances employment regulations can exacerbate competitive pressures. (4) A degree of informality in small firms further eases responses. By the same token, however, hopes that regulation will stimulate modernization are rarely realized.

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