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Company Start-Up Costs and Employment

  • Christopher A. Pissarides

I study the role of company start-up costs for employment performance. The model is search equilibrium with a new concept for firms. Agents have an innate managerial ability and make a career choice to become either managers or workers. Managers set up firms, post jobs and match with workers. Managers set up firms, post jobs and match with workers. I show that in equilibrium, career choice and job creation are jointly determined. Higher start-up costs reduce overall employment but increase the size of incumbent firms. I discuss some cross-country OECD evidence which supports the model's main proposition.

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File URL: http://cep.lse.ac.uk/pubs/download/DP0520.pdf
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0520.

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Date of creation: Mar 2002
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Handle: RePEc:cep:cepdps:dp0520
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. 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.
  2. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, October.
  3. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  4. Donald A. Walker (ed.), 2000. "Equilibrium," Books, Edward Elgar, volume 0, number 1585, March.
  5. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  6. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
  7. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
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