Firms and Labor Market Regulation: Evidence from France

French and German workers are generously protected from economic risks such as unemployment or disability.  Workers in the United States are not.  Why is this the case?  More broadly, why do some states adopt strong systems of social protection, while others leave workers to the whims of the market?  This paper explores the micro-foundations of a prominent recent hypothesis in CPE: that firms have been the drivers in the expansion of social protection across the advanced industrialized countries.  The notion that firm preferences may account for differences in welfare state policy is intriguing, yet the evidence for this view is relatively limited.  We propose a new research design to shed light on the preferences of firms vis-a-vis social protection: an event study, which uses the stock market’s response to a policy change to analyze the value of social protection to a firm.  We explore this question in the context of France, which introduced a number of social protection reforms in several key policy areas during the late 1990s and early 2000s, and which also implements an annual census allowing us to categorize firms by relevant worker and other characteristics.  We examine the response of firms to three episodes of labor market reform: collective bargaining, employment protection and the 35-hour work week.