Full Citation

Title: Employment Decline During the Great Recession: the Role of Firm Size Distribution

Citation Type: Journal Article

Publication Year: 2022

ISBN:

ISSN: 0013-0133

DOI: 10.1093/EJ/UEAC091

NSFID:

PMCID:

PMID:

Abstract: Over eight million jobs were lost in the Great Recession, creating widespread economic hardship. This paper documents a novel and robust empirical regularity that highly concentrated local labour markets experienced larger employment declines during the Great Recession. Through setting up a model with heterogeneous firms facing idiosyncratic productivity shocks, I show that firm size distribution summarised by the Herfindahl- Hirschman index plays a crucial role in the reallocation of workers, and it magnifies negative idiosyncratic shocks and attenuates positive ones. I undertake a series of empirical tests to rule out alternative explanations, and show that large employment losses in concentrated labour markets are not driven by highly concentrated industry locations being hit harder during the Great Recession, having smaller labour markets or higher firm leverage ratios. The effect of concentration level is larger in sectors with higher labour supply elasticity, or a higher variance of productivity shocks, and rises during the Great Recession compared to other periods, consistent with my model’s predictions.

Url: https://doi.org/10.1093/ej/ueac091

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Authors: Xu, Wenjian

Periodical (Full): The Economic Journal

Issue: 652

Volume: 133

Pages: 1-40

Data Collections: IPUMS USA, IPUMS CPS

Topics: Labor Force and Occupational Structure

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