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EU start-up calculator: impact of COVID-19 on aggregate employment: Scenario analysis for Bulgaria, Croatia, Czechia, Luxemburg, Netherlands, Poland, Romania, Slovakia and Slovenia

Author

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  • Cristiana Benedetti Fasil

    (European Commission – JRC)

  • Petr Sedlacek

    (University of Oxford, UK, CFM-LSE & CEPR)

  • Vincent Sterk

    (University College London, UK, CFM-UCL & CEPR)

Abstract

Early data show that the COVID-19 pandemic has affected particularly strongly start-up business activity. This may have dramatic and lasting effects on aggregate employment which persist as the cohort of new firms age. To assess such an impact, we developed the EU start-up calculator. A first application targeted to Austria, Belgium, Germany, Hungary, Italy and Spain is discussed in Benedetti Fasil, Sedlacek and Sterk (2020a) and a second focusing Denmark, Estonia, Finland, France, Latvia, Lithuania, Portugal and Sweden is presented in Benedetti Fasil, Sedlacek and Sterk (2020b). The EU start-up calculator is an empirical tool that allows to conduct scenario analysis to compute the impact that the disruption of start-up activity has on aggregate employment on EU Member States and their economic sectors. In this paper, we simulate the effects of a strong (i.e. of magnitude equivalent to the Great Recession of 2008 and 2009) but short-lived (i.e. lasting one-year) crisis in Bulgaria, Croatia, Czechia, Luxemburg, the Netherlands, Poland, Romania, Slovakia and Slovenia. This shock generates important and persistent job losses in all the countries ranging between 0.25 (Luxemburg) and 6.9% (Slovakia) of negative deviation from the employment trend in 2020 and results in a computed potential cumulative loss of jobs for the period 2020-2030 ranging from 5,600 (Luxemburg) to 2179,000 (Poland). The potential negative impact is particularly high in Bulgaria, Croatia, Poland, Romania and Slovakia as well as in the service sector, which are characterized by a high firm turnover and a reliance on start-ups and young firms for job creation. We also find that in most countries the deterioration of the survival rate of young firms plays an important role in driving employment, seconded by the number of new entrants. As a consequence, policies aimed at supporting young firms and incentivizing the creation of new ones may significantly mitigate the medium-term effect of the pandemic. In fact, when we simulate bounce-back scenarios where the number of firms entering the economy rapidly increases in 2021, in every country the outlook is significantly improved, the recovery is faster and the aggregate job loss is lower.

Suggested Citation

  • Cristiana Benedetti Fasil & Petr Sedlacek & Vincent Sterk, 2020. "EU start-up calculator: impact of COVID-19 on aggregate employment: Scenario analysis for Bulgaria, Croatia, Czechia, Luxemburg, Netherlands, Poland, Romania, Slovakia and Slovenia," JRC Research Reports JRC123086, Joint Research Centre.
  • Handle: RePEc:ipt:iptwpa:jrc123086
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    References listed on IDEAS

    as
    1. Petr Sedláček & Vincent Sterk, 2017. "The Growth Potential of Startups over the Business Cycle," American Economic Review, American Economic Association, vol. 107(10), pages 3182-3210, October.
    2. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-938, October.
    3. Sedláček, Petr, 2020. "Lost generations of firms and aggregate labor market dynamics," Journal of Monetary Economics, Elsevier, vol. 111(C), pages 16-31.
    4. Lichter, Andreas & Peichl, Andreas & Siegloch, Sebastian, 2015. "The own-wage elasticity of labor demand: A meta-regression analysis," European Economic Review, Elsevier, vol. 80(C), pages 94-119.
    5. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
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    Keywords

    COVID-19; start-ups; employment;
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