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Human capital and the size distribution of firms

Pedro Gomes () and Zoe Kuehn ()

Review of Economic Dynamics, 2017, vol. 26, 164-179

Abstract: Countries with a lower fraction of workers with secondary education have smaller firms. We set up a model of occupational choice where individuals have primary, secondary or tertiary education. A more educated work force raises firm size and productivity. More educated workers earn higher wages, and hence among educated individuals only the more able become entrepreneurs. We find that within the framework of our model, different educational attainments can explain one third of the difference in average firm size between the US and Mexico. While improved educational attainments hence imply an increase in firm size over time, a fall in the price of capital together with capital-skill complementarity acts in the opposite direction, something that can explain a relatively constant average firm size in the US since the late 1970's. Our policy experiments highlight how public employment and the skill bias in public hiring additionally affect firm size and productivity. (Copyright: Elsevier)

Keywords: firm size; educational attainment; entrepreneurship; college premium; high school premium; public employment (search for similar items in EconPapers)
JEL-codes: J24 J45 E24 H30 O11 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.red.2017.03.004

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