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New Business Start-ups and the Business Cycle

  • Coles, Melvyn G
  • Kelishomi, Ali Moghaddasi

This paper considers new business start-up activity within a stochastic equilibrium model of unemployment. The resulting job creation process is both natural and tractable, and generates equilibrium unemployment and vacancy dynamics which match the volatility and persistence observed in the data. The insight is that the standard Diamond/Mortensen/Pissarides matching framework works beautifully once the free entry of vacancies assumption is replaced by a model of business start-up activity. The approach is particularly important as it is demonstrated that a large part of net job creation in the U.S. economy can be attributed to new business start-ups.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8588.

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Date of creation: Oct 2011
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Handle: RePEc:cpr:ceprdp:8588
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  1. Moscarini, Giuseppe & Postel-Vinay, Fabien, 2009. "Large Employers Are More Cyclically Sensitive," IZA Discussion Papers 4014, Institute for the Study of Labor (IZA).
  2. Giuseppe Moscarini & Fabien Postel-Vinay, 2013. "Stochastic Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1545-1581.
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  6. James S. Costain & Michael Reiter, 2003. "Business cycles, unemployment insurance and the calibration of matching models," Economics Working Papers 872, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2006.
  7. Michelacci, Claudio & Silva, Olmo, 2006. "Why So Many Local Entrepreneurs?," CEPR Discussion Papers 5828, C.E.P.R. Discussion Papers.
  8. Dale T. Mortensen & Rasmus Lentz, 2005. "An Empirical Model of Growth Through Product Innovation," 2005 Meeting Papers 910, Society for Economic Dynamics.
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  10. Eran Yashiv, 2005. "Evaluating the Performance of the Search and Matching Model," CEP Discussion Papers dp0677, Centre for Economic Performance, LSE.
  11. 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.
  12. 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.
  13. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 0853, European Central Bank.
  14. Guido Menzio & Shouyong Shi, 2010. "Directed Search on the Job, Heterogeneity, and Aggregate Fluctuations," Working Papers tecipa-390, University of Toronto, Department of Economics.
  15. Marcus Hagedorn & Iourii Manovskii, 2011. "Productivity And The Labor Market: Comovement Over The Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 603-619, 08.
  16. Yashiv, Eran, 2006. "U.S. Labor Market Dynamics Revisited," IZA Discussion Papers 2455, Institute for the Study of Labor (IZA).
  17. Bjoern Bruegemann & Giuseppe Moscarini, 2007. "Rent Rigidity, Asymmetric Information, and Volatility Bounds in Labor Markets," NBER Working Papers 13030, National Bureau of Economic Research, Inc.
  18. Shigeru Fujita & Garey Ramey, 2009. "The Cyclicality Of Separation And Job Finding Rates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 415-430, 05.
  19. repec:cdl:ucsdec:198797 is not listed on IDEAS
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