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Who Creates Jobs? Estimating Job Creation Rates at the Firm Level

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  • Huber, Peter

    ()
    (Austrian Institute of Economic Research)

  • Oberhofer, Harald

    ()
    (University of Salzburg)

  • Pfaffermayr , Michael

    ()
    (University of Innsbruck)

Abstract

This paper analyzes econometric models of the Davis, Haltiwanger and Schuh (1996) job creation rate. In line with the most recent job creation literature, we focus on employment-weighted OLS estimation. Our main theoretical result reveals that employment-weighted OLS estimation of DHS job creation rate models provides biased marginal effects estimates. The reason for this is that by definition, the error terms for entering and exiting firms are non-stochastic and non-zero. This violates the crucial mean independence assumption requiring that the conditional expectation of the errors is zero for all firms. Consequently, we argue that firm entries and exits should be analyzed with separate econometric models and propose alternative maximum likelihood estimators which are easy to implement. A small-scale Monte Carlo analysis and an empirical exercise using the population of Austrian firms point to the relevance of our analytical findings.

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Bibliographic Info

Paper provided by University of Salzburg in its series Working Papers in Economics and Finance with number 2013-5.

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Length: 31 pages
Date of creation: 15 Nov 2013
Date of revision:
Handle: RePEc:ris:sbgwpe:2013_005

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Related research

Keywords: DHS job creation rate; firm size; firm age; maximum likelihood estimation; three-part model; multi-part model; Monte Carlo simulation;

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References

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  1. R. Jason Faberman, 2003. "Job Flows and Establishment Characteristics: Variations Across U.S. Metropolitan Areas," William Davidson Institute Working Papers Series 2003-609, William Davidson Institute at the University of Michigan.
  2. Huber, Peter & Oberhofer, Harald & Pfaffermayr, Michael, 2012. "Job Creation and the Intra-distribution Dynamics of the Firm Size Distribution," Working Papers in Economics and Finance 2012-5, University of Salzburg.
  3. Ibsen, Rikke & Westergaard-Nielsen, Niels, 2005. "Job Creation and Destruction over the Business Cycles and the Impact on Individual Job Flows in Denmark 1980-2001," Working Papers 05-4, University of Aarhus, Aarhus School of Business, Department of Economics.
  4. Del Bono, Emilia & Weber, Andrea & Winter-Ebmer, Rudolf, 2008. "Clash of Career and Family. Fertility Decisions after Job Displacement," Economics Series 222, Institute for Advanced Studies.
  5. Fotini Voulgaris & Theodore Papadogonas & George Agiomirgianakis, 2005. "Job Creation and Job Destruction in Greek Manufacturing," Review of Development Economics, Wiley Blackwell, vol. 9(2), pages 289-301, 05.
  6. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," Working Papers 10-17, Center for Economic Studies, U.S. Census Bureau.
  7. David Neumark & Brandon Wall & Junfu Zhang, 2011. "Do Small Businesses Create More Jobs? New Evidence for the United States from the National Establishment Time Series," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 16-29, August.
  8. Florian Stahl & Alfred Stiglbauer & Rudolf Winter-Ebmer & Josef Zweimüller, 2002. "Job Creation and Job Destruction in a Regulated Labor Market: The Case of Austria," Working Papers 78, Oesterreichische Nationalbank (Austrian Central Bank).
  9. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August.
  10. Martina Fink & Esther Segalla & Andrea Weber & Christine Zulehner, 2010. "Extracting Firm Information from Administrative Records: The ASSD Firm Panel," NRN working papers 2010-04, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  11. Haltiwanger, John C. & Vodopivec, Milan, 2002. "Gross worker and job flows in a transition economy: an analysis of Estonia," Labour Economics, Elsevier, vol. 9(5), pages 601-630, November.
  12. David Card & Raj Chetty & Andrea Weber, 2006. "Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," NBER Working Papers 12639, National Bureau of Economic Research, Inc.
  13. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
  14. Haltiwanger, John C. & Vodopivec, Milan, 2002. "Worker Flows, Job Flows and Firm Wage Policies: An Analysis of Slovenia," IZA Discussion Papers 569, Institute for the Study of Labor (IZA).
  15. Michaela Fuchs & Antje Weyh, 2010. "The determinants of job creation and destruction: plant-level evidence for Eastern and Western Germany," Empirica, Springer, vol. 37(4), pages 425-444, November.
  16. Peter Huber & Michael Pfaffermayr, 2010. "Testing for Conditional Convergence in Variance and Skewness: The Firm Size Distribution Revisited," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(5), pages 648-668, October.
  17. Richard E. Caves, 1998. "Industrial Organization and New Findings on the Turnover and Mobility of Firms," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 1947-1982, December.
  18. Timothy Dunne & John Haltiwanger & John Baldwin, 1994. "A Comparison of Job Creation and Job Destruction in Canada and the United States," Working Papers 94-2, Center for Economic Studies, U.S. Census Bureau.
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Citations

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Cited by:
  1. Crespo Cuaresma, Jesus & Oberhofer, Harald & Vincelette, Gallina A., 2014. "Institutional Barriers and Job Creation in Central and Eastern Europe," Working Papers in Economics and Finance 2014-1, University of Salzburg.
  2. Oberhofer, Harald & Vincelette, Gallina A, 2013. "Determinants of job creation in eleven new EU member states : evidence from firm level data," Policy Research Working Paper Series 6533, The World Bank.
  3. Werner Hölzl, 2012. "Job Creation and Employment Size Categories. A Study of Methodological Alternatives," WIFO Working Papers 425, WIFO.

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