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Startups, Credit, and the Jobless Recovery

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  • Immo Schott

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    Abstract

    Abstract Job creation depends on a firm's age. Startups (firms of age zero) and young firms play a crucial role for job creation: they grow faster and create more net jobs than older incumbent firms. During the 2008-2009 recession the jobs created by those firms declined considerably, aversely affecting aggregate employment figures. While net job creation by existing firms is beginnig to recover, job creation by startups in 2010 was at its lowest point since 1983 and continues to be at historically low levels. This paper argues that the conditions on the credit market are linked to the 'jobless recovery' phenomenon. Especially young and small firms are still finding it difficult to obtain credit, limiting their growth prospects and job creation. The paper links regional conditions in the US housing market to state-level data on job creation by startups. I then estimate a search model augmented with heterogeneous firms, entry and exit, and financial frictions. This model is able to match key moments of the firm distribution and employment at the micro- and macrolevel. In the context of this model I analyze the effects of a 'credit crunch' and consider possible policies to boost job creation by startups.

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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 340.

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    Date of creation: 2013
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    Handle: RePEc:red:sed013:340

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    1. Wouter J. den Haan & Garey Ramey & Joel Watson, 1997. "Job Destruction and Propagation of Shocks," NBER Working Papers 6275, National Bureau of Economic Research, Inc.
    2. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
    3. Manju Puri & Jörg Rocholl & Sascha Steffen, 2011. "Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects," NBER Working Papers 16967, National Bureau of Economic Research, Inc.
    4. Christopher A. Pissarides, 2007. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," CEP Discussion Papers dp0839, Centre for Economic Performance, LSE.
    5. Michael R. Darby & John C. Haltiwanger & Mark W. Plant, 1986. "The Ins and Outs of Unemployment: The Ins Win," UCLA Economics Working Papers 411, UCLA Department of Economics.
    6. Coles, Melvyn G & Kelishomi, Ali Moghaddasi, 2011. "New Business Start-ups and the Business Cycle," CEPR Discussion Papers 8588, C.E.P.R. Discussion Papers.
    7. Den Haan, Wouter, 2008. "Assessing the Accuracy of the Aggregate Law of Motion in Models with Heterogeneous Agents," CEPR Discussion Papers 6971, C.E.P.R. Discussion Papers.
    8. 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.
    9. Bassett, William F. & Chosak, Mary Beth & Driscoll, John C. & Zakrajšek, Egon, 2014. "Changes in bank lending standards and the macroeconomy," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 23-40.
    10. Manuel Adelino & Antoinette Schoar & Felipe Severino, 2012. "Credit Supply and House Prices: Evidence from Mortgage Market Segmentation," NBER Working Papers 17832, National Bureau of Economic Research, Inc.
    11. Cooper, Russell & Haltiwanger, John & Willis, Jonathan L., 2007. "Search frictions: Matching aggregate and establishment observations," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 56-78, September.
    12. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
    13. John C. Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," NBER Working Papers 16300, National Bureau of Economic Research, Inc.
    14. 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 915-38, October.
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