Employment in Large Firms More Cyclically Sensitive
3 March 2009
In times of recession job losses in large companies naturally attract a great deal of media interest. This is not simply because dramatic job losses make compelling headlines. Recent research by Bristol’s Fabien Postel-Vinay and Giuseppe Moscarini (Yale University) has confirmed that employment in large firms is cyclically more sensitive than employment in small firms. In a recent Bristol working paper they report that large firms destroy proportionally more jobs during and after recessions and create proportionally more jobs late in expansions.
Moscarini and Postel-Vinay’s conclusions were based on the new US Census Bureau’s Business Dynamic Statistics and they confirmed their findings using data for other countries including the UK. They analysed the employment patterns of small and large firms spanning four business cycles. In the US case a small firm is defined as one with fewer than 50 employees and a large firm one with more than 1,000 employees.
Moscarini and Postel-Vinay sketch a simple model of firm dynamics to explain these cyclical features – an explanation based on differential hiring and employment turnover frictions.
The topical relevance of these results has naturally attracted media interest. Time magazine’s on-line business section reported Moscarini and Postel-Vinay’s findings under the headline ‘Why are large companies losing more jobs than small ones?’
Differential Employment Growth around Three Recessions
The pattern is driven at least in part by excess layoffs by large employers in and just after recessions and by excess poaching by large employers late in expansions.
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