Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 482: Explaining National Differences in the Size and Industrial Distribution of Employment

Steven J. Davis () and Magnus Henrekson ()
Additional contact information
Steven J. Davis: The University of Chicago Graduate, School of Business, Postal: 1101 East 58th Street, Chicago, IL 60637, USA
Magnus Henrekson: The Research Institute of Industrial Economics, Postal: Box 5501, 114 85 Stockholm, Sweden

Abstract: What factors determine national differences in the size and industry distribution of employment? This study stresses the role of business taxation, employment security laws, credit market policies, wage-setting institutions and the size of the public sector. We characterize these aspects of the economic policy environment in Sweden prior to 1990-91 and compare them to the situation in other European countries and the United States. Our characterization and international comparisons show that Swedish policies strongly disfavored less capital-intensive firms, smaller firms, entry by new firms, and individual and family ownership of business. We also compile evidence that these policies affect outcomes. Taking the U.S. industrial distribution as a benchmark that reflects a comparatively neutral set of policies and institutions, Sweden's employment distribution in the mid-1980s is sharply tilted away from low-wage industries and industries with greater employment shares for smaller firms and establishments. The Swedish rate of self-employment in the 1970s and 1980s is the lowest among all OECD countries. Compared to other European countries, Sweden has an unusually high share of employment in large firms.

Keywords: Business Taxation; Industrial Policy; Industry Structure; Size Distribution

JEL-codes: H30; J21; L52

41 pages, June 1, 1997

Note: Forthcoming in Small Business Economics

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