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Human capital and the size distribution of firms

Listed author(s):
  • Pedro Gomes

    (Universidad Carlos III de Madrid)

  • Zoe Kuehn

    (Universidad Autonoma de Madrid)

Countries with a lower fraction of workers with secondary education have smaller firms. We set up a model of occupational choice where individuals have primary, secondary or tertiary education. A more educated work force raises firm size and productivity. More educated workers earn higher wages, and hence among educated individuals only the more able become entrepreneurs. We find that within the framework of our model, different educational attainments can explain one third of the difference in average firm size between the US and Mexico. While improved educational attainments hence imply an increase in firm size over time, a fall in the price of capital together with capital-skill complementarity acts in the opposite direction, something that can explain a relatively constant average firm size in the US since the late 1970's. Our policy experiments highlight how public employment and the skill bias in public hiring additionally affect firm size and productivity. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2017.03.004
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 26 (2017)
Issue (Month): (October)
Pages: 164-179

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Handle: RePEc:red:issued:14-102
DOI: 10.1016/j.red.2017.03.004
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  1. Alberto Behar & Junghwan Mok, 2013. "Does Public-Sector Employment Fully Crowd Out Private-Sector Employment?," IMF Working Papers 13/146, International Monetary Fund.
  2. POSCHKE, Markus, 2011. "The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology," Cahiers de recherche 08-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  3. Domeij, David & Ljungqvist, Lars, 2006. "Wage Structure and Public Sector Employment: Sweden versus the United States 1970-2002," SSE/EFI Working Paper Series in Economics and Finance 638, Stockholm School of Economics.
  4. Giordano, Raffaela & Depalo, Domenico & Coutinho Pereira, Manuel & Eugène, Bruno & Papapetrou, Evangelia & Pérez, Javier J. & Reiss, Lukas & Roter, Mojca, 2011. "The public sector pay gap in a selection of Euro area countries," Working Paper Series 1406, European Central Bank.
  5. Alejandra Mizala & Pilar Romaguera & Sebastian Gallegos, 2010. "Public-Private Wage Gap In Latin America (1999-2007): A Matching Approach," Documentos de Trabajo 268, Centro de Economía Aplicada, Universidad de Chile.
  6. Malley, Jim & Moutos, Thomas, 1996. " Does Government Employment "Crowd-Out" Private Employment? Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 289-302, June.
  7. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
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