EMPLOYMENT GROWTH, INCUMBENTS AND ENTRANTS - EVIDENCE FROM GERMANY

Longitudinal data on establishments in western Germany show that there are sort of intensive and extensive margins in the job generation process. Cyclical employment fluctuations are mainly associated with contractions and expansions of continuing plants, but the entry of establishments is the driving force of trend employment growth. As there is no evidence of significant adjustment costs for labour, it is suggested that the role of entry in employment growth has to do with differences in the product specialisation of new firms and incumbents. Product differentiation would also explain the observed high heterogeneity of establishment-level outcomes within any industry.