Next, we can modify our model to account for different firm sizes. For notational convenience and ease of exposition, we have used a continuum model. A firm hires a unit mass of consumers. The size of the firm then becomes a normalization and hence has no bearing on the dynamics and steady-state properties. In practice, firms hire a finite number of workers, and the law of large number becomes a poor approximation when the firm is small. Even when a small firm draws from the same work force as any other firm, the variance of workers’ health-care cost may be larger. The most convenient way to.
