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Firm size distribution and employment fluctuations: Theory and evidence

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  • Görg, Holger
  • Henze, Philipp
  • Jienwatcharamongkhol, Viroj
  • Kopasker, Daniel
  • Molana, Hassan
  • Montagna, Catia
  • Sjöholm, Fredrik

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 & Montagna, Catia & Sjöholm, Fredrik, 2016. "Firm size distribution and employment fluctuations: Theory and evidence," Kiel Working Papers 2064, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:2064
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    2. Michele Dell'Era & Luca David Opromolla & Luís Santos‐Pinto, 2023. "Can optimism solve the entrepreneurial earnings puzzle?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(1), pages 139-169, January.

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    More about this item

    Keywords

    Firm distribution; Firm size; Employment; Fluctuations;
    All these keywords.

    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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