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


  • Huber, Peter

    () (Austrian Institute of Economic Research)

  • Oberhofer, Harald

    () (University of Salzburg)

  • Pfaffermayr , Michael

    () (University of Innsbruck)


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.

Suggested Citation

  • Huber, Peter & Oberhofer, Harald & Pfaffermayr , Michael, 2013. "Who Creates Jobs? Estimating Job Creation Rates at the Firm Level," Working Papers in Economics 2013-5, University of Salzburg.
  • Handle: RePEc:ris:sbgwpe:2013_005

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    References listed on IDEAS

    1. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Chapters,in: NBER Macroeconomics Annual 2006, Volume 21, pages 107-180 National Bureau of Economic Research, Inc.
    2. Emilia Del Bono & Andrea Weber & Rudolf Winter-Ebmer, 2012. "Clash Of Career And Family: Fertility Decisions After Job Displacement," Journal of the European Economic Association, European Economic Association, vol. 10(4), pages 659-683, August.
    3. Guertzgen Nicole, 2009. "Firm Heterogeneity and Wages under Different Bargaining Regimes: Does a Centralised Union Care for Low-Productivity Firms?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(2-3), pages 239-253, April.
    4. David Card & Raj Chetty & Andrea Weber, 2007. "Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1511-1560.
    5. Alfred Stiglbauer & Florian Stahl & Rudolf Winter-Ebmer & Josef Zweimüller, 2003. "Job Creation and Job Destruction in a Regulated Labor Market: The Case of Austria," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 30(2), pages 127-148, June.
    6. Rikke Ibsen & Niels Westergaard-Nielsen, 2005. "Job Creation and Destruction over the Business Cycles and the Impact on Individual Job Flows in Denmark 1980-2001," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 89(2), pages 183-207, June.
    7. 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.
    8. 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).
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    10. Michaela Fuchs & Antje Weyh, 2010. "The determinants of job creation and destruction: plant-level evidence for Eastern and Western Germany," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(4), pages 425-444, November.
    11. 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.
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    13. Giuseppe Moscarini & Fabien Postel-Vinay, 2012. "The Contribution of Large and Small Employers to Job Creation in Times of High and Low Unemployment," American Economic Review, American Economic Association, vol. 102(6), pages 2509-2539, October.
    14. John Baldwin & Timothy Dunne & John Haltiwanger, 1998. "A Comparison Of Job Creation And Job Destruction In Canada And The United States," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 347-356, August.
    15. 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, May.
    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. 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.
    18. Peter Huber & Harald Oberhofer & Michael Pfaffermayr, 2014. "Job creation and the intra-distribution dynamics of the firm size distribution," Industrial and Corporate Change, Oxford University Press, vol. 23(1), pages 171-197, February.
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    21. 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.
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    Cited by:

    1. Jesús Cuaresma & Harald Oberhofer & Gallina Vincelette, 2014. "Institutional barriers and job creation in Central and Eastern Europe," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-29, December.
    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. Alex Coad & Christina Guenther, 2014. "Processes of firm growth and diversification: theory and evidence," Small Business Economics, Springer, vol. 43(4), pages 857-871, December.
    4. Iza Lejárraga & Harald Oberhofer, 2015. "Performance of small- and medium-sized enterprises in services trade: evidence from French firms," Small Business Economics, Springer, vol. 45(3), pages 673-702, October.
    5. Werner Hölzl, 2012. "Job Creation and Employment Size Categories. A Study of Methodological Alternatives," WIFO Working Papers 425, WIFO.
    6. Hanhyung Pyo & Sungcheol Hong & Ahnjeong Kim, 2016. "irm Size and Job Creation in Korea: Do Small Businesses Create More Jobs?," Korean Economic Review, Korean Economic Association, vol. 32, pages 137-166.
    7. repec:liu:liucej:v:13:y:2016:i:2:p:199-219 is not listed on IDEAS

    More about this item


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

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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