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Entry, Exit, and Plant-Level Dynamics over the Business Cycle

  • Yoonsoo Lee
  • Toshihiko Mukoyama

This paper analyzes the implications of plant-level dynamics over the business cycle. We first document basic patterns of entry and exit of U.S. manufacturing plants, in terms of employment and productivity, between 1972 and 1997. We show how entry and exit patterns vary during the business cycle, and that the cyclical pattern of entry is very different from the cyclical pattern of exit. Second, we build a general equilibrium model of plant entry, exit, and employment and compare its predictions to the data. In our model, plants enter and exit endogenously, and the size and productivity of entering and exiting plants are also determined endogenously. Finally, we explore the policy implications of the model. Imposing a firing tax that is constant over time can destabilize the economy by causing fluctuations in the entry rate. Entry subsidies are found to be effective in stabilizing the entry rate and output.

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File URL: ftp://ftp2.census.gov/ces/wp/2008/CES-WP-08-17.pdf
File Function: First version, 2008
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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 08-17.

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Length: 53 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:cen:wpaper:08-17
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  1. Cooper, Russell & Haltiwanger, John & Willis, Jonathan L., 2015. "Dynamics of labor demand: Evidence from plant-level observations and aggregate implications," Research in Economics, Elsevier, vol. 69(1), pages 37-50.
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  18. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "Plant Turnover and Gross Employment Flows in the U.S. Manufacturing Sector," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 48-71, January.
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  25. Marcelo Veracierto, 2004. "Firing Costs and Business Cycle Fluctuations," 2004 Meeting Papers 590, Society for Economic Dynamics.
  26. Lucia Foster & John Haltiwanger & Namsuk Kim, 2006. "Gross Job Flows for the U.S. Manufacturing Sector: Measurement from the Longitudinal Research Database," Working Papers 06-30, Center for Economic Studies, U.S. Census Bureau.
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  29. 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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