Journal Article

Firm Size Distribution and Employment Fluctuations: Theory and Evidence


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

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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JEL Classification
E20, E23, L20

Key Words

  • employment
  • Firm distribution
  • firm size
  • Fluctuations

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