Establishment Size Distribution in the European Union

Overview & Synopsis

This Brief studies the establishment size distribution in the European Union countries. A well-established literature has established that an abundance of small establishments among lower-income countries is evidence of the misallocation of inputs. To investigate this phenomenon, this Brief analyzes both the mean size (in terms of employment) and the employment share of the top 10 percent of establishments within an economy, across European Union countries and regions at the NUTS1 and NUT2 levels. Results show that higher-income countries have larger establishments on average and a higher concentration of employment in the top 10 percent of establishments than lower-income countries. These findings hold when looking at both the NUTS1 and NUTS2 regional levels. Moreover, establishment size increases with the age of the establishment and the level of foreign ownership and exports. Finally, a comparison of overall establishment size distribution reveals that lower-income countries have a higher prevalence of smaller establishments and fewer larger establishments than higher-income countries, which confirms the predictions of the misallocation literature.