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Firm Size Distribution and Employment Fluctuations: Theory and Evidence

Author

Listed:
  • Görg, Holger

    (University of Kiel and Kiel Institute for the World Economy)

  • Henze, Philipp

    (University of Kiel and Kiel Institute for the World Economy)

  • Jienwatcharamongkhol, Viroj

    (Nottingham University (Ningbo))

  • Kopasker, Daniel

    (University of Aberdeen and the Scottish Institute for Research in Economics)

  • Molana, Hassan

    (University of Dundee and the Scottish Institute for Research in Economics)

  • Sjöholm, Fredrik

    (Lund University)

  • Montagna, Catia

    (University of Aberdeen and the Scottish Institute for Research in Economics)

Abstract

This paper studies the effect of the firm-size distribution on the relationship between employment and output. We construct a theoretical model, which predicts that changes in demand for industry output have larger effects on employment in industries characterised by a distribution that is more skewed towards smaller 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. Our empirical results align with the predictions of the theory and confirm that the size distribution of firms is an important determinant of the relationship between changes in output and employment.

Suggested Citation

  • Görg, Holger & Henze, Philipp & Jienwatcharamongkhol, Viroj & Kopasker, Daniel & Molana, Hassan & Sjöholm, Fredrik & Montagna, Catia, 2016. "Firm Size Distribution and Employment Fluctuations: Theory and Evidence," Working Paper Series 1142, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1142
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    3. Herkenhoff, Philipp & Krautheim, Sebastian & Sauré, Philip, 2024. "A simple model of buyer–seller networks in international trade," European Economic Review, Elsevier, vol. 170(C).

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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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