Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1142: Firm Size Distribution and Employment Fluctuations: Theory and Evidence

Holger Görg , Philipp Henze , Viroj Jienwatcharamongkhol , Daniel Kopasker , Hassan Molana , Fredrik Sjöholm () and Catia Montagna
Additional contact information
Holger Görg: University of Kiel and Kiel Institute for the World Economy
Philipp Henze: University of Kiel and Kiel Institute for the World Economy
Viroj Jienwatcharamongkhol: Nottingham University (Ningbo)
Daniel Kopasker: University of Aberdeen and the Scottish Institute for Research in Economics
Hassan Molana: University of Dundee and the Scottish Institute for Research in Economics
Fredrik Sjöholm: Lund University, Postal: and the Research Institute of Industrial Economics
Catia Montagna: University of Aberdeen and the Scottish Institute for Research in Economics

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.

Keywords: Firm distribution; Firm size; Employment; Fluctuations

JEL-codes: E20; E23; L20

35 pages, November 23, 2016

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