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Firm size distribution and employment fluctuations: Theory and evidence

Author

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  • Görg, Holger
  • Henze, Philipp
  • Jienwatcharamongkhol, Viroj
  • Kopasker, Daniel
  • Molana, Hassan
  • Montagna, Catia
  • Sjöholm, Fredrik

Abstract

We show that the firm-size distribution is an important determinant of the relationship between an industry's employment and output. A theoretical model predicts that changes in demand for an industry's output have larger effects on employment, resulting from adjustments at both the intensive and extensive margin, in industries characterised by a distribution that has a lower density of large firms. Industry-specific shape parameters of the firm size distributions are estimated using firm-level data from Germany, Sweden and the UK, and used to augment a relationship between industry-level employment and output. The empirical results align with the predictions of the theory.

Suggested Citation

  • Görg, Holger & Henze, Philipp & Jienwatcharamongkhol, Viroj & Kopasker, Daniel & Molana, Hassan & Montagna, Catia & Sjöholm, Fredrik, 2017. "Firm size distribution and employment fluctuations: Theory and evidence," Research in Economics, Elsevier, vol. 71(4), pages 690-703.
    • Handle: RePEc:eee:reecon:v:71:y:2017:i:4:p:690-703
    DOI: 10.1016/j.rie.2017.09.002
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    Keywords

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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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