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New Business Start-ups and the Business Cycle

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  • Coles, Melvyn G
  • Kelishomi, Ali Moghaddasi

Abstract

This paper considers new business start-up activity within a stochastic equilibrium model of unemployment. The resulting job creation process is both natural and tractable, and generates equilibrium unemployment and vacancy dynamics which match the volatility and persistence observed in the data. The insight is that the standard Diamond/Mortensen/Pissarides matching framework works beautifully once the free entry of vacancies assumption is replaced by a model of business start-up activity. The approach is particularly important as it is demonstrated that a large part of net job creation in the U.S. economy can be attributed to new business start-ups.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8588.

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Date of creation: Oct 2011
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Handle: RePEc:cpr:ceprdp:8588

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Related research

Keywords: aggregate dynamics; equilibrium unemployment; startups;

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References

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  1. Giuseppe Moscarini & Fabien Postel-Vinay, 2009. "Large Employers Are More Cyclically Sensitive," NBER Working Papers 14740, National Bureau of Economic Research, Inc.
  2. Michael W. Elsby & Ryan Michaels & Gary Solon, 2007. "The Ins and Outs of Cyclical Unemployment," NBER Working Papers 12853, National Bureau of Economic Research, Inc.
  3. Michelacci, Claudio & Suarez, Javier, 2002. "Business Creation and the Stock Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3513, C.E.P.R. Discussion Papers.
  4. Eran Yashiv, 2005. "Evaluating the Performance of the Search and Matching Model," CEP Discussion Papers dp0677, Centre for Economic Performance, LSE.
  5. Fonseca, Raquel & Lopez-Garcia, Paloma & Pissarides, Christopher A., 2001. "Entrepreneurship, start-up costs and employment," European Economic Review, Elsevier, vol. 45(4-6), pages 692-705, May.
  6. Dale T. Mortensen, 2005. "More on Unemployment and Vacancy Fluctuations," 2005 Meeting Papers 326, Society for Economic Dynamics.
  7. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
  8. Yashiv, Eran, 2006. "U.S. Labor Market Dynamics Revisited," IZA Discussion Papers 2455, Institute for the Study of Labor (IZA).
  9. James S. Costain & Michael Reiter, 2003. "Business Cycles, Unemployment Insurance, and the Calibration of Matching Models," CESifo Working Paper Series 1008, CESifo Group Munich.
  10. Guido Menzio & Shouyong Shi, 2010. "Directed Search on the Job, Heterogeneity, and Aggregate Fluctuations," American Economic Review, American Economic Association, vol. 100(2), pages 327-32, May.
  11. Monika Merz & Eran Yashiv, 2007. "Labor and the Market Value of the Firm," American Economic Review, American Economic Association, vol. 97(4), pages 1419-1431, September.
  12. Lentz, Rasmus & Mortensen, Dale T., 2005. "An Empirical Model of Growth Through Product Innovation," IZA Discussion Papers 1685, Institute for the Study of Labor (IZA).
  13. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  14. Giuseppe Moscarini & Fabien Postel-Vinay, 2010. "Stochastic Search Equilibrium," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1754, Cowles Foundation for Research in Economics, Yale University.
  15. Marcus Hagedorn & Iourii Manovskii, 2011. "Productivity And The Labor Market: Comovement Over The Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 603-619, 08.
  16. Michelacci, Claudio & Silva, Olmo, 2006. "Why So Many Local Entrepreneurs?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5828, C.E.P.R. Discussion Papers.
  17. repec:cdl:ucsdec:198797 is not listed on IDEAS
  18. Bjoern Bruegemann & Giuseppe Moscarini, 2007. "Rent Rigidity, Asymmetric Information, and Volatility Bounds in Labor Markets," NBER Working Papers 13030, National Bureau of Economic Research, Inc.
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Cited by:
  1. Immo Schott, 2013. "Startups, Credit, and the Jobless Recovery," 2013 Meeting Papers, Society for Economic Dynamics 340, Society for Economic Dynamics.

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