Explaining national differences in the size and industry distribution of employment

What forces determine national differences in the size and industry distrib ution of employment? We stress the role of the economic policy environment as determined by business taxes, employment security laws, credit market re gulations, the national pension system, wage-setting institutions and the s ize of the public sector. We characterize these aspects of the economic env ironment in Sweden prior to 1990-91 and compare them to the situation in ot her European countries and the United States. Our characterization and inte rnational comparisons show that Swedish policies and institutions strongly disfavored less capital-intensive firms, smaller firms, entry by new firms, and individual and family ownership of business. We also compile evidence that these forces affect outcomes. Taking the U.S. industry distribution as a benchmark that reflects a comparatively neutral set of policies and institutions, Sweden's employment distribution in the mid-1980s is sharply tilted away from low-wage industries and industries wi th greater employment shares for smaller firms and establishments. Compared to other European countries, Sweden has an unusually high share of employm ent in large firms. Furthermore, the Swedish rate of self-employment in the 1970s and 1980s is the lowest among all OECD countries. The institutional and policy factors emphasized by our study differ greatly across countries. This fact suggests that our approach can be fruitfully a pplied to other studies of national differences in industry and size struct ures and their evolution over time. As an example, the tax reform wave of t he 1980s - which largely evened out cross-country differences in corporate taxation among OECD countries - offers some basis for projecting a movement towards greater similarity among wealthy countries in the size and industr y distribution of employment.