Why are establishments so heterogeneous?

Changes in the size of establishments — as opposed to the turnover of workers across a given set of jobs — account for a non-negligible component of gross workers flows. Based on a rich database of establishment-level employment records in western Germany, this paper analyses the magnitude and determinants of job turnover and its relation with labour turnover. Consistently with findings from other countries, it is shown that job turnover is mainly the byproduct of the dispersion of establishment-level outcomes within any industry rather than of job reallocation across different sectors. The role played by disturbances to consumer preferences over differentiated products is also assessed in an attempt to shed some light on the determinants of this tremendous heterogeneity of establishment-level employment changes within each industry.The views expressed herein are those of the author and do not necessarily reflect those of the OECD. The author would like to thank Boyan Jovanovic and an anonymous referee for useful comments on an initial draft.