Is the German labour market granular?. Issue 1 (2nd January 2022)

• Record Type: Journal Article
• Authors: Kovalenko, Tim; Schnabel, Claus; Stüber, Heiko
• Is Part Of: Applied economics letters. Volume 29:Issue 1(2022)
• Page Start: 41
• Page End: 48
• Publication Date: 2022-01-02
• Subjects: Idiosyncratic shocks -- granular residual -- employment -- administrative data; E24 -- E32; Economics -- Periodicals; Economics, Mathematical -- Periodicals; 330
• DOI: 10.1080/13504851.2020.1855300
• Languages: English
• ISSNs: 1350-4851

Abstract

ABSTRACT: This paper is the first to investigate the relevance of the 'granular hypothesis" proposed by Gabaix ( Econometrica 2011) for employment growth. Using comprehensive data for Germany, we show that the establishment size distribution in terms of employment is indeed fat-tailed and that idiosyncratic shocks to large establishments explain a substantial portion of aggregate employment change. This relationship is more pronounced in the manufacturing than the service sector. Our findings may be an argument for stabilizing the largest establishments when hit by negative idiosyncratic shocks, since their employment fluctuations could spill over to aggregate employment growth.