Family firms and labor demand: Size matters - but only the small ones are different

Abstract

This paper analyzes the differences in labor demand between family and non-family firms. The majority of firms in modern economies are still family controlled. In addition, these firms seem to exhibit better employment performance than other companies. Therefore, this study estimates a labor demand model with German establishment panel data. Moreover, a Heckman correction is introduced to the regressions to avoid selectivity. The results of random effects and fractional panel probit estimations indicate that own-wage and output elasticities are lower in absolute values, thus supporting the assumption that family firms offer higher job security and are more risk averse than other establishments. However, this result does not hold if the investigation is restricted to establishments with 20 or more employees. There is no evidence of different behavior in larger family firms.