Do New Firms Recruit Employees From Small or Large Firms, and Do Small or Large Firms Recruit Employees From Firms That Cease to Operate?

Abstract

Panel data of Norwegian industries show that when they increase in the number of firms, firm size inequality in employees decreases. Decreasing firm size inequality implies that large firms become smaller in employees, and an increasing number of firms in an industry implies that more new firms are established than closed, i.e., ceasing to operate and going out of business. Thus, new firms chiefly recruit employees from large firms. Similarly, the data show that when industries decrease in the number of firms, firm size inequality in employees increases. Increasing firm size inequality implies that large firms become larger in employees, and a decreasing number of firms in an industry implies that more firms are closed than established. Thus, large firms chiefly recruit employees from firms that cease to operate. An implication of our findings is that large firms are crucial in recruiting employees to new firms and in recruiting employees from firms that cease to operate.

Keywords: dynamic panel regression; firm closure; firm size inequality; new firm formation; panel data; recruitment.