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Large Employers Are More Cyclically Sensitive

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  • Moscarini, Giuseppe

    (Yale University)

  • Postel-Vinay, Fabien

    (University College London)

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 Reclassification 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 variety 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

  • Moscarini, Giuseppe & Postel-Vinay, Fabien, 2009. "Large Employers Are More Cyclically Sensitive," IZA Discussion Papers 4014, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp4014
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. Julieta Caunedo, 2013. "Industry Dynamics, Investment and Business Cycles," 2013 Meeting Papers 1078, Society for Economic Dynamics.
    4. Giuseppe Moscarini & Fabien Postel-Vinay, 2013. "Stochastic Search Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(4), pages 1545-1581.
    5. 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.
    6. Cravo, Túlio A., 2011. "Are small employers more cyclically sensitive? Evidence from Brazil," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 754-769.
    7. Edouard Schaal, 2011. "Uncertainty, Productivity and Unemployment in the Great Depression," 2011 Meeting Papers 1450, Society for Economic Dynamics.
    8. 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.
    9. 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.
    10. Razvan Vlaicu & Alexander Whalley, 2011. "Do housing bubbles generate fiscal bubbles?," Public Choice, Springer, vol. 149(1), pages 89-108, October.
    11. 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.
    12. 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.
    13. Markus Poschke, 2018. "The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(3), pages 1-41, July.
    14. 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.
    15. Xin Xu & Robert Kaestner, 2010. "The Business Cycle and Health Behaviors," NBER Working Papers 15737, National Bureau of Economic Research, Inc.
    16. Xu, Xin, 2013. "The business cycle and health behaviors," Social Science & Medicine, Elsevier, vol. 77(C), pages 126-136.
    17. Tulio A. Cravo, 2017. "Firm size and business cycles," IZA World of Labor, Institute of Labor Economics (IZA), pages 371-371, June.
    18. 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.
    19. I. Horta & A. Camanho & Jill Johnes & Geraint Johnes, 2013. "Performance trends in the construction industry worldwide: an overview of the turn of the century," Journal of Productivity Analysis, Springer, vol. 39(1), pages 89-99, February.
    20. Lester, Benjamin, 2010. "Directed search with multi-vacancy firms," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2108-2132, November.
    21. 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.

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    More about this item

    Keywords

    Gibrat's law; job flows; firm size; business cycle;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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