# **1 Introduction**

Understanding the facts on the size of productive units in developing economies is critical for uncovering barriers to development. The business size distribution reflects the incentives and difficulties businesses face to innovate and grow and is thus crucial to identifying distortions hampering aggregate productivity for a given productivity distribution across businesses (Restuccia and Rogerson (2008); Hsieh and Klenow (2009); Hopenhayn (2016, 1992) and a long literature following their footsteps). Thus, an important dimension of the literature addressing the development problem has been the documentation of business size distribution in less developed countries (LDCs) in contrast to advanced economies (AEs). Thanks to these efforts, we know that LDCs have firms that are smaller on average, even within sectors, and that uncovering this relationship requires using sources of data that appropriately cover the bottom tail of the firm size distribution (Bento and Restuccia, 2021, 2017, 2021; Poschke, 2018). Business size is also crucial in the debate on within-country inequality, which has lately focused on how large firms’ (labor and product) market power affects workers’ incomes, vis-a-vis business owners.<sup>1</sup> Although the emphasis has been on AEs, some recent efforts extend the analysis to LDCs (Brooks et al. (2021),Amodio and de Roux (2021),Amodio et al. (2022)), where inequality has been historically very high and remains so, despite a slightly decreasing trend after the year 2000.

The study of the business size distribution has relied heavily on firm-level data. While firm data has been crucial in developing these branches of the literature and has brought a great deal of useful knowledge, it has limitations that are particularly severe for LDCs, because even the most comprehensive firm datasets exclude large segments of the productive sector in these countries. We aim to address this bias. Using official employment/household survey data, we characterize the (employment-weighted) size distribution of the universe of productive units from which workers obtain their income in 45 countries, including advanced economies and LDCs, particularly (but not only) those in Latin America. In doing so, we also quantify the magnitude of the mentioned bias in firm-level datasets. Finally, taking advantage of the nature of our data, where the unit of observation is the individual, and the information is representative of the entire private economy, we characterize the relationship between the business size distribution and individuals’ earnings for the overall working population. By working population, we mean the complete set of individuals in the (private) economy who declare obtaining income from productive activities, either as employees, self-employed workers or firm owners.

> 1 The literature has documented the concurrence of increasing wealth concentration and income inequality, falling labor shares in national income, and increasing market power in advanced economies over the last decades. Piketty (2014); Piketty et al. (2017); Saez and Zucman (2020a,b); Autor et al. (2020); Karabarbounis and Neiman (2013); De Loecker and Eeckhout (2018); De Loecker et al. (2020); Yeh et al. (2022).

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