Statistics of Japan, 2019). For these countries, we rely on microdata from 2019, except for the U.S. (2018). For Japan we only have aggregates by business-size bins and thus can only produce the individual business size distribution (i.e., not the joint earnings-size distribution).

Our earnings variable includes all sources of income corresponding to individuals’ occupations, all pre-tax. In all the data sources we use, workers classify themselves as self-employed, employees, or employers. For all employees and employers (business owners) we assign business sizes in number of workers as reported by the individual.<sup>7</sup> For consistency across countries, we restrict the sample to individuals who report deriving income from an economic activity, are at least 20 years old, and report positive earnings. We only report calculations including individuals in the private sector, but the stylized facts also hold when the public sector is included. Additional country-to-country details are provided in the Appendix (Table A.1.).

# **3 Results**

## **3.1 Latin America’s full business size distribution in perspective**

Figure 1 depicts the employment-weighted business size distribution for Latin America and the other regions in our sample. Each bar shows the average across countries in the region for the corresponding figure, weighted by each country’s workforce. We begin with Panel A, where businesses are classified according to whether they are self-employment initiatives or employer businesses above or below the 10-employee threshold. This is the most comprehensive panel in terms of country coverage because information on size bins defined by the 10-employee threshold is collected in most countries, including all those in our sample. The contrast between LATAM economies and all AEs in the sample is stark. While firms with at least 10 employees absorb, on average, 70% of the workforce in Europe, rich Asian economies, and the United States, they only explain 32% of employment in LATAM. The bulk of the region’s employment —68%— is in micro-businesses or self-employment without employees. India, Pakistan, and Nepal display business size distributions similar to those in LATAM when only the urban workforce is considered.<sup>8</sup> Of course, there is heterogeneity in business size distribution across countries within regions and across rich regions in the figure. Distributions by country are reported in the Appendix (Table

> 7 In some countries, self-employed workers may answer the question of business size and may report a number of workers larger than one. This may happen for instance, for contractual workers or for co-owners of family businesses without employees. We do not use business size reports for self-employed workers.

> 8 These three countries have over 60% of their overall population in the rural area, while Latin American countries have rates of urbanization similar to those in AEs (over 80%), and thus rural populations below 20%. We analyze only urban employment in these three countries but note that when including rural employment, the size distribution is entirely dominated by self-employment and micro-enterprises with fewer than 10 employees.

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