Firm Size Distribution and Employment Fluctuations: Theory and Evidence

Authors

• Görg
• H.
• Henze
• P.
• Jienwatcharamongkhol
• V.
• Kopasker
• D.
• Molana
• H.
• Montagna
• C.
• Sjöholm
• F.

Publication Date

DOI

10.1016/j.rie.2017.09.002

JEL Classification

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We show that the firm-size distribution is an important determinant of the relationship between an industry’s employment and output. A theoretical model predicts that changes in demand for an industry’s output have larger effects on employment, resulting from adjustments at both the intensive and extensive margin, in industries characterised by a distribution that has a lower density of large 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. The empirical results align with the predictions of the theory.

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