INDUSTRIAL STRUCTURE AND COMPETITIVE FORCES

There is an extensive literature on the determinants of firm entry to and exit from industries and the implications for job creation and job losses. Cable and Schwalbach (1991) summarize results of recent studies of manufacturing using Orr-type models in a number of different countries (Belgium, Germany, Korea, Norway, Portugal and the United Kingdom). Entry of firms responds, at least to some extent, to profit opportunities. Entry barriers, as measured by capital requirements and sunk costs, tend to reduce entry rates. Results for other variables are mixed, though from other studies it would appear that higher firm concentration tends to be associated with reduced entry.

Baldwin, Dunne and Haltiwanger (1993) examined the influence of industrial structure on job turnover in the manufacturing sector in Canada and the United States. The factors influencing excess job reallocation in the two countries were basically the same. Both countries exhibited similar turnover after accounting for differences in characteristics measuring industrial structure, indicating that common factors, such as the technology base of an industry, might account for similar plant turnover in both countries.
Industry concentration was negatively correlated with excess job reallocation. Higher concentration also led to both lower job gains and losses. The effect was highly significant in both countries. This was primarily a result of variation across industries. Over time increases in plant size were associated with higher turnover though this was not always statistically significant. This may be a result of restructuring associated with an industry’s move to a larger average plant size. Changes in labour productivity were associated with higher excess job reallocation, higher job gains and lower job losses, though the relationship was generally only significant for Canada and not for the United States. The impact of unionization was not possible to measure given its very high correlation with plant size used to measure concentration. Davis, Haltiwanger and Schuh (1994) found that job losses were highest in establishments where capital intensity was low.