Firm size and employment determination in dutch manufacturing industries

Abstract

This paper examines whether the determination of employment differs between large and small firms. An employment equation is estimated on panel data of 67 (35) three-digit industries in Dutch manufacturing (1974–1986). The conclusions are as follows. Firstly, employment adjustment appears to be faster in small firms than in large ones. Secondly, the elasticity of factor substitution and the real wage elasticity at constant output are nearly the same for large and small firms. Thirdly, the estimated output elasticities suggest constant returns to scale in large firms and increasing returns in small ones. Finally, the number of working hours has less impact on employment in small firms than in large ones.