Firm Size Evolution and Outsourcing
AbstractThis paper sheds new light on forces shaping the outsourcing decision by linking the decision to a certain form of non-linearity in overhead costs which divides a firm’s operation into small and large regimes. Marginal firms that find evolution into a large business too costly outsource in a bid to grow out of bounds instead of expanding internally. This process leads to a lumpy relationship between size and outsourcing, in which outsourcing is only practiced by narrow set of firms in the middle of the distribution. The theoretical implication for size distribution is a bunching of firms at the size where the transition to large regime takes place with a missing middle immediately following it. A panel of Australian small and medium-size firms is used to put the predictions to test with mostly supportive results. The findings open a new avenue to rethink growth and job creation amongst small businesses.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2013-07.
Length: 41 pages
Date of creation: Jul 2013
Date of revision:
Contact details of provider:
Postal: Australian School of Business Building, Sydney 2052
Fax: +61)-2- 9313- 6337
Web page: http://www.economics.unsw.edu.au/
More information through EDIRC
Small Business; Outsourcing; Management Organization; Size Distribution.;
Find related papers by JEL classification:
- C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Factor Analysis
- D2 - Microeconomics - - Production and Organizations
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- L6 - Industrial Organization - - Industry Studies: Manufacturing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-BEC-2013-06-16 (Business Economics)
- NEP-CSE-2013-06-16 (Economics of Strategic Management)
- NEP-SBM-2013-06-16 (Small Business Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Evans, David S, 1987.
"The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 35(4), pages 567-81, June.
- Evans, David S., 1986. "The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Working Papers 86-33, C.V. Starr Center for Applied Economics, New York University.
- James Levinsohn & Amil Petrin, 2003.
"Estimating Production Functions Using Inputs to Control for Unobservables,"
Review of Economic Studies,
Wiley Blackwell, vol. 70(2), pages 317-341, 04.
- James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
- Robert Breunig & Marn-Heong Wong, 2007.
"A Richer Understanding of Australia’s Productivity Performance in the 1990s: Improved estimates based upon firm-level panel data,"
CEPR Discussion Papers
545, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- Robert Breunig & Marn-Heong Wong, 2008. "A Richer Understanding of Australia's Productivity Performance in the 1990s: Improved Estimates Based Upon Firm-Level Panel Data," The Economic Record, The Economic Society of Australia, vol. 84(265), pages 157-176, 06.
- Dube, Arindrajit & Kaplan, Ethan, 2008.
"Does Outsourcing Reduce Wages in the Low Wage Service Occupations? Evidence from Janitors and Guards,"
Institute for Research on Labor and Employment, Working Paper Series
qt6s89498v, Institute of Industrial Relations, UC Berkeley.
- Arindrajit Dube & Ethan Kaplan, 2010. "Does Outsourcing Reduce Wages in the Low-Wage Service Occupations? Evidence from Janitors and Guards," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 63(2), pages 287-306, January.
- John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010.
"Who Creates Jobs? Small vs. Large vs. Young,"
10-17, Center for Economic Studies, U.S. Census Bureau.
- Hansen, Bruce E, 1999.
" Testing for Linearity,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 13(5), pages 551-76, December.
- Stacy Sneeringer & Nigel Key, 2011. "Effects of Size-Based Environmental Regulations: Evidence of Regulatory Avoidance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(4), pages 1189-1211.
- Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
- Dharmapala, Dhammika & Slemrod, Joel & Wilson, John Douglas, 2011.
"Tax policy and the missing middle: Optimal tax remittance with firm-level administrative costs,"
Journal of Public Economics,
Elsevier, vol. 95(9-10), pages 1036-1047, October.
- Dharmapala, Dhammika & Slemrod, Joel & Wilson, John Douglas, 2011. "Tax policy and the missing middle: Optimal tax remittance with firm-level administrative costs," Journal of Public Economics, Elsevier, vol. 95(9), pages 1036-1047.
- James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
- Fabio Pieri & Enrico Zaninotto, 2013. "Vertical integration and efficiency: an application to the Italian machine tool industry," Small Business Economics, Springer, vol. 40(2), pages 397-416, February.
- Acs, Zoltan J & Audretsch, David B, 1988. "Innovation in Large and Small Firms: An Empirical Analysis," American Economic Review, American Economic Association, vol. 78(4), pages 678-90, September.
- Stefano Federico, 2010. "Outsourcing versus integration at home or abroad and firm heterogeneity," Empirica, Springer, vol. 37(1), pages 47-63, February.
- Katharine G. Abraham & Susan K. Taylor, 1993.
"Firms' Use of Outside Contractors: Theory and Evidence,"
NBER Working Papers
4468, National Bureau of Economic Research, Inc.
- Abraham, Katharine G & Taylor, Susan K, 1996. "Firms' Use of Outside Contractors: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 394-424, July.
- Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75, pages 123.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guillaume Roger) The email address of this maintainer does not seem to be valid anymore. Please ask Guillaume Roger to update the entry or send us the correct address.
If references are entirely missing, you can add them using this form.