Recent research attempting to match the firm size distribution has mainly focussed on its
right tail. not paying much attention to the left tail. Indeed, popular models have problems accounting for just how small and
persistent small firms can be. For instance, in settings like that of Hopenhayn (1992) and the
many models based on it, a fixed cost or a uniform outside option imply that there is a strictly
positive minimum firm size. In the data, however, this minimum size is zero when measured
in terms of employees. Hence, estimated versions of such models have trouble accounting for
small firms and their persistence. Due to the non-linearity of these models, this may affect other
parameter estimates and predictions.