Zombie firms curb employment growth at healthy exporters
Zombie firms hinder employment growth at healthy Italian exporters by locking up local labor supply. In local markets with heavy zombie firm concentrations, expanding companies fail to hire even during foreign demand booms, according to Bank of Italy research.
The trapped worker penalty
Analyzing roughly 650,000 firm-year observations between 2015 and 2023, Antonio Accetturo, Michele Cascarano and Andrea Locatelli quantify how zombie firms hinder employment reallocation across Italian local labor markets.
In areas with no zombie firms, a 10 percent positive shock to export demand raises firm employment by 0.34 percent.
In local labor markets at the 25th percentile of zombie employment share, that same demand shock increases hiring by only 0.27 percent.
At the 75th percentile of zombie prevalence, the employment response drops to zero.
The researchers define zombie firms as enterprises at least ten years old whose operating income fails to cover interest expenses for three consecutive years.
White-collar workers stay locked in
The labor constraint falls unevenly across workers and firm sizes.
Zombie employment dampens hiring specifically for white-collar staff, whose wages in zombie firms average 27.4 percent above healthier peers, while blue-collar recruitment remains largely unconstrained.
Micro and small exporters suffer the sharpest hiring bottlenecks because their recruitment networks remain local.
Furthermore, the drag stems almost entirely from chronically distressed firms rather than temporary distress.
Cleansing beats artificial life support
Subsidizing unviable companies does not protect jobs; it starves productive exporters of needed talent.
Policymakers must end credit evergreening and expedite insolvency to release trapped workers.
Without swifter market exits for chronic zombies, industrial aid will continue to penalize healthy firms.