Journal Article

Firm Size Distribution and Employment Fluctuations: Theory and Evidence

Research in Economics, 71(4): 690-703

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.


Philipp Henze
Viroj Jienwatcharamongkhol
Daniel Kopasker
Hassan Molana
Catia Montagna
Fredrik Sjöholm


Publication Date
JEL Classification
E20, E23, L20

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