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Large Employers Are More Cyclically Sensitive

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  • Moscarini, Giuseppe

    ()
    (Yale University)

  • Postel-Vinay, Fabien

    ()
    (University College London)

Abstract

We provide new evidence that large firms or establishments are more sensitive than small ones to business cycle conditions. Larger employers shed proportionally more jobs in recessions and create more of their new jobs late in expansions, both in gross and net terms. The differential growth rate of employment between large and small firms varies by about 5% over the business cycle. Omitting cyclical indicators may lead to conclude that, on average, these cyclical effects wash out and size does not predict subsequent growth (Gibrat’s law). We employ a variety of measures of relative employment growth, employer size and classification by size. We revisit two statistical fallacies, the Regression and Reclassification biases, that can affect our results, and we show empirically that they are quantitatively modest given our focus on relative cyclical behavior. We exploit a variety of (mostly novel) U.S. datasets, both repeated cross-sections and job flows with employer longitudinal information, starting in the mid 1970’s and now spanning four business cycles. The pattern that we uncover is robust to different treatments of entry and exit of firms and establishments, and occurs within, not across broad industries, regions and states. Evidence on worker flows suggests that the pattern is driven at least in part by excess layoffs by large employers in and just after recessions, and by excess poaching by large employers late in expansions. We find the same pattern in similar datasets in four other countries, including full longitudinal censuses of employers from Denmark and Brazil. Finally, we sketch a simple firm-ladder model of turnover that can shed light on these facts, and that we analyze in detail in companion papers.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4014.

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Length: 50 pages
Date of creation: Feb 2009
Date of revision:
Publication status: published as 'The Contribution of Large and Small Employers to Job Creation in Times of High and Low Unemployment' in: American Economic Review, 2012, 102 (6), 2509-39
Handle: RePEc:iza:izadps:dp4014

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Keywords: Gibrat's law; job flows; firm size; business cycle;

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References

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  1. Giuseppe Moscarini & Fabien Postel-Vinay, 2009. "The Timing of Labor Market Expansions: New Facts and a New Hypothesis," NBER Chapters, in: NBER Macroeconomics Annual 2008, Volume 23, pages 1-51 National Bureau of Economic Research, Inc.
  2. Dale T. Mortensen & Rasmus Lentz, 2005. "An Empirical Model of Growth Through Product Innovation," 2005 Meeting Papers, Society for Economic Dynamics 910, Society for Economic Dynamics.
  3. Orietta Marsili, 2006. "Stability and Turbulence in the Size Distribution of Firms: Evidence from Dutch Manufacturing," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 20(2), pages 255-272.
  4. Sharpe, Steven A, 1994. "Financial Market Imperfections, Firm Leverage, and the Cyclicality of Employment," American Economic Review, American Economic Association, American Economic Association, vol. 84(4), pages 1060-74, September.
  5. Arthur M. Okun, 1973. "Upward Mobility in a High-Pressure Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 207-262.
  6. Fabien Postel-Vinay & Giuseppe Moscarini, 2009. "Non-Stationary Search Equilibrium," 2009 Meeting Papers, Society for Economic Dynamics 31, Society for Economic Dynamics.
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Cited by:
  1. Kleinert, Jörn & Martin, Julien & Toubal, Farid, 2012. "The Few Leading The Many: Foreign Affiliates and Business Cycle Comovement," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9129, C.E.P.R. Discussion Papers.
  2. Kaas, Leo & Kircher, Philipp, 2011. "Efficient Firm Dynamics in a Frictional Labor Market," IZA Discussion Papers 5452, Institute for the Study of Labor (IZA).
  3. Giuseppe Moscarini & Fabien Postel-Vinay, 2010. "Stochastic Search Equilibrium," Levine's Working Paper Archive 661465000000000001, David K. Levine.
  4. Julieta Caunedo, 2013. "Industry Dynamics, Investment and Business Cycles," 2013 Meeting Papers, Society for Economic Dynamics 1078, Society for Economic Dynamics.
  5. Coles, Melvyn G & Kelishomi, Ali Moghaddasi, 2011. "New Business Start-ups and the Business Cycle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8588, C.E.P.R. Discussion Papers.
  6. Edouard Schaal, 2011. "Uncertainty, Productivity and Unemployment in the Great Depression," 2011 Meeting Papers 1450, Society for Economic Dynamics.
  7. POSCHKE, Markus, 2011. "The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 08-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  8. Burcu Duygan-Bump & Alexey Levkov & Judit Montoriol-Garriga, 2010. "Financing constraints and unemployment: evidence from the Great Recession," Risk and Policy Analysis Unit Working Paper, Federal Reserve Bank of Boston QAU10-6, Federal Reserve Bank of Boston.
  9. Shawn Kantor & Alexander Whalley, 2009. "Do Universities Generate Agglomeration Spillovers? Evidence from Endowment Value Shocks," NBER Working Papers 15299, National Bureau of Economic Research, Inc.
  10. T√∫lio Cravo, 2011. "Are Small Firms more cyclically Sensitive than Large Ones? National, Regional and Sectoral Evidence from Brazil," ERSA conference papers ersa10p507, European Regional Science Association.
  11. Razvan Vlaicu & Alexander Whalley, 2011. "Do housing bubbles generate fiscal bubbles?," Public Choice, Springer, Springer, vol. 149(1), pages 89-108, October.
  12. Cravo, Túlio A., 2011. "Are small employers more cyclically sensitive? Evidence from Brazil," Journal of Macroeconomics, Elsevier, Elsevier, vol. 33(4), pages 754-769.
  13. Horta, I.M. & Camanho, A.S. & Moreira da Costa, J., 2012. "Performance assessment of construction companies: A study of factors promoting financial soundness and innovation in the industry," International Journal of Production Economics, Elsevier, Elsevier, vol. 137(1), pages 84-93.

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