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Explaining National Differences in the Size and Industry Distribution of Employment

  • Davis, Steven J
  • Henrekson, Magnus

What factors determine national differences in the size and industry distribution of employment? We stress the role of the economic policy environment as determined by business taxes, employment securitylaws, credit market regulations, the national pension system, wage-setting institutions and the size of the public sector. We characterize these aspects of the policy environment in Sweden prior to 1990-91 and compare them to the situation in other European countries and the United States. Our characterization and international comparisons show that Swedish policies strongly disfavored less capital-intensive firms, smaller firms, entry by new firms and individual and family ownership of business. We also compile evidence that these policies affect outcomes. Taking the U.S. industry distribution as a benchmark that reflects a comparatively neutral set of policies and institutions, Sweden's employment distribution in the mid-1980s is sharply tilted away from low-wage industries and industries with greater employment shares for smaller firms and establishments. Compared to other European countries, Sweden has an unusually high share of employment in large firms. Furthermore, the Swedish rate of self-employment in the 1970s and 80s is the lowest among all OECD countries. The institutional and policy factors emphasized by our study differ greatly across countries. This fact suggests that our approach can be fruitfully applied to other studies of national differences in industry and size structures and their evolution over time. As an example, the tax reform wave of the 1980s which largely evened out cross-country differences in corporate taxation among OECD countries offers some basis for projecting a movement towards greater similarity among wealthy countries in the size and industry distribution of employment.

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Article provided by Springer in its journal Small Business Economics.

Volume (Year): 12 (1999)
Issue (Month): 1 (February)
Pages: 59-83

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Handle: RePEc:kap:sbusec:v:12:y:1999:i:1:p:59-83
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  1. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 239-300 National Bureau of Economic Research, Inc.
  2. Edward E. Learner & Per Lundborg, 1997. "A Heckscher-Ohlin View of Sweden Competing in the Global Marketplace," NBER Chapters, in: The Welfare State in Transition: Reforming the Swedish Model, pages 399-464 National Bureau of Economic Research, Inc.
  3. Zoltan Acs & David Audretsch, 1990. "Innovation and Small Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011131, June.
  4. Steven J. Davis & Magnus Henrekson, 1997. "Industrial Policy, Employer Size, and Economic Performance in Sweden," NBER Chapters, in: The Welfare State in Transition: Reforming the Swedish Model, pages 353-398 National Bureau of Economic Research, Inc.
  5. Jorgenson, D.W., 1992. "Tax Reform and the Cost of Capital : An International Comparison," Harvard Institute of Economic Research Working Papers 1621, Harvard - Institute of Economic Research.
  6. Edin, P.A. & Holmlund, B., 1992. "The Swedish Wage Structure : The Rise and Fall of Solidarity Policy," Papers 1992-13, Uppsala - Working Paper Series.
  7. Södersten, Jan, 1986. "The Investment Funds System Reconsidered," Working Paper Series 174, Research Institute of Industrial Economics, revised Jan 1988.
  8. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade, and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1.
  9. Albaek, Karsten & Arai, Mahmood & Asplund, Rita, 1995. "Employer Size-Effectsin the Nordic Countries," Discussion Papers 532, The Research Institute of the Finnish Economy.
  10. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  11. Stefan Fölster & Sam Peltzman, 1993. "The Social Costs of Regulation and Lack of Competition in Sweden," University of Chicago - George G. Stigler Center for Study of Economy and State 91, Chicago - Center for Study of Economy and State.
  12. King, Mervyn A. & Fullerton, Don, 2010. "The Taxation of Income from Capital," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226436319, July.
  13. Steven J. DAVIS & John HALTIWANGER, 1996. "Employer Size and the Wage Structure in U.S. Manufacturing," Annales d'Economie et de Statistique, ENSAE, issue 41-42, pages 323-367.
  14. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, June.
  15. Steve J. Davis & John Haltiwanger, 1991. "Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986," NBER Working Papers 3722, National Bureau of Economic Research, Inc.
  16. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1987. "Employer Size: The Implications for Search, Training, Capital Investment, Starting Wages, and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 5(1), pages 76-89, January.
  17. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  18. Davis, Steven J., 1997. "Sorting, learning, and mobility when jobs have scarcity value : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 327-337, June.
  19. Erik Norrman & Charles E. McLure Jr., 1997. "Tax Policy in Sweden," NBER Chapters, in: The Welfare State in Transition: Reforming the Swedish Model, pages 109-154 National Bureau of Economic Research, Inc.
  20. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  21. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1.
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