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Large Employers Are More Cyclically Sensitive

Author

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  • Giuseppe Moscarini
  • Fabien Postel-Vinay

    ()

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 Reclas- sification 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 va- riety 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.

Suggested Citation

  • Giuseppe Moscarini & Fabien Postel-Vinay, 2009. "Large Employers Are More Cyclically Sensitive," Bristol Economics Discussion Papers 09/609, Department of Economics, University of Bristol, UK.
  • Handle: RePEc:bri:uobdis:09/609
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    References listed on IDEAS

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    1. Rasmus Lentz & Dale T. Mortensen, 2008. "An Empirical Model of Growth Through Product Innovation," Econometrica, Econometric Society, vol. 76(6), pages 1317-1373, November.
    2. Sharpe, Steven A, 1994. "Financial Market Imperfections, Firm Leverage, and the Cyclicality of Employment," American Economic Review, American Economic Association, vol. 84(4), pages 1060-1074, September.
    3. 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.
    4. Orietta Marsili, 2006. "Stability and Turbulence in the Size Distribution of Firms: Evidence from Dutch Manufacturing," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(2), pages 255-272.
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    Cited by:

    1. Giuseppe Moscarini & Fabien Postel-Vinay, 2013. "Stochastic Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1545-1581.
    2. repec:iza:izawol:journl:2017:n:371 is not listed on IDEAS
    3. Leo Kaas & Philipp Kircher, 2015. "Efficient Firm Dynamics in a Frictional Labor Market," American Economic Review, American Economic Association, vol. 105(10), pages 3030-3060, October.
    4. Jörn Kleinert & Julien Martin & Farid Toubal, 2015. "The Few Leading the Many: Foreign Affiliates and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 134-159, October.
    5. Julieta Caunedo, 2013. "Industry Dynamics, Investment and Business Cycles," 2013 Meeting Papers 1078, Society for Economic Dynamics.
    6. Terjesen, Siri A. & João Guedes, Maria & Patel, Pankaj C., 2016. "Founded in adversity: Operations-based survival strategies of ventures founded during a recession," International Journal of Production Economics, Elsevier, vol. 173(C), pages 161-169.
    7. 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.
    8. Duygan-Bump, Burcu & Levkov, Alexey & Montoriol-Garriga, Judit, 2015. "Financing constraints and unemployment: Evidence from the Great Recession," Journal of Monetary Economics, Elsevier, vol. 75(C), pages 89-105.
    9. Túlio 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.
    10. Razvan Vlaicu & Alexander Whalley, 2011. "Do housing bubbles generate fiscal bubbles?," Public Choice, Springer, vol. 149(1), pages 89-108, October.
    11. 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, vol. 137(1), pages 84-93.
    12. Cravo, Túlio A., 2011. "Are small employers more cyclically sensitive? Evidence from Brazil," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 754-769.
    13. Xin Xu & Robert Kaestner, 2010. "The Business Cycle and Health Behaviors," NBER Working Papers 15737, National Bureau of Economic Research, Inc.
    14. Pinto, Eugénio, 2011. "Firms' relative sensitivity to aggregate shocks and the dynamics of gross job flows," Labour Economics, Elsevier, vol. 18(1), pages 111-119, January.
    15. Coles, Melvyn G & Kelishomi, Ali Moghaddasi, 2011. "New Business Start-ups and the Business Cycle," CEPR Discussion Papers 8588, C.E.P.R. Discussion Papers.
    16. Lester, Benjamin, 2010. "Directed search with multi-vacancy firms," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2108-2132, November.
    17. Sung-Eun Yu, 2017. "The Behavior of Small and Large Firms during Business Cycle Episodes and during Monetary Policy Episodes: A Comparison of Earlier and Recent Periods," Working Paper Series, Department of Economics, University of Utah 2017_05, University of Utah, Department of Economics.
    18. Xu, Xin, 2013. "The business cycle and health behaviors," Social Science & Medicine, Elsevier, vol. 77(C), pages 126-136.
    19. 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.

    More about this item

    Keywords

    business cycle ; employment; firm size.;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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