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The Growth Potential of Startups over the Business Cycle

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  • Petr Sedlacek

    ()
    (Rheinische Friedrich-Wilhelms-Universit├Ąt Bonn (University of Bonn), Wirtschaftswissenschaftlicher Fachbereich (Economics Department), Bonn Graduate School of Economics)

  • Vincent Sterk

    ()
    (Centre for Macroeconomics (CFM))

Abstract

This paper shows that job creation of cohorts of U.S. firms is strongly infl uenced by aggregate conditions at the time of their entry. Using data from the Business Dynamics Statistics (BDS) we follow cohorts of young firms and document that their employment levels are very persistent and largely driven by the intensive margin (average firm size) rather than the extensive margin (number of firms). To differentiate changes in the composition of startup cohorts from post-entry choices and to evaluate aggregate effects, we estimate a general equilibrium firm dynamics model using BDS data. We find that even for older firms, the aggregate state at birth drives the vast majority of variations in employment across cohorts of the same age. The key force behind this result are fl uctuations in the composition of startup cohorts with respect to firms' potential to grow large. At the aggregate level, factors determined at the startup phase account for the large low-frequency fl uctuations observed in the employment rate.

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Bibliographic Info

Paper provided by Centre for Macroeconomics (CFM) in its series Discussion Papers with number 1403.

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Length: 52 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:cfm:wpaper:1403

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Web page: http://www.centreformacroeconomics.ac.uk/
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Keywords: Firm Dynamics; Heterogeneous Agents; Maximum Likelihood; DSGE;

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  1. Jeffrey Campbell & Mariacristina De Nardi, 2009. "A conversation with 590 Nascent Entrepreneurs," Annals of Finance, Springer, Springer, vol. 5(3), pages 313-340, June.
  2. Dino Palazzo & Gian Luca Clementi, 2010. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," 2010 Meeting Papers, Society for Economic Dynamics 1188, Society for Economic Dynamics.
  3. Gian Luca Clementi & Dino Palazzo, 2010. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," Working Paper Series, The Rimini Centre for Economic Analysis 27_10, The Rimini Centre for Economic Analysis.
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