Firm size distribution and employment fluctuations: Theory and evidence |
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| Affiliation: | 1. University of Kiel and Kiel Institute for the World Economy, Germany;2. Lund University, Sweden;3. University of Dundee and the Scottish Institute for Research in Economics, UK;4. Economics, Business School, University of Aberdeen and the Scottish Institute for Research in Economics, Aberdeen AB24 3QY, UK;5. Lund University and the Research Institute of Industrial Economics, Stockholm, Sweden;2. Texas Tech University, Lubbock, TX, United States;1. CORE, Université Catholique de Louvain, Voie du Roman Pays 34, Louvain-la-Neuve, B-1348, Belgium;2. BETA, Université de Strasbourg, 61 avenue de la Forêt Noire, Strasbourg, F-67085, France;3. UCP, Católica Lisbon School of Business and Economics, Portugal |
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| Abstract: | 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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