The growth potential of startups over the business cycle

Petr Sedlacek and Vincent Sterk

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper shows that job creation of cohorts of U.S. firms is strongly influenced by aggregate conditions at the time of their entry. Using data from the Business Dynamics Statistics (BDS) we follow cohorts of young firms and document that their employment levels are very persistent and largely driven by the intensive margin (average firm size) rather than the extensive margin (number of firms). To differentiate changes in the composition of startup cohorts from post-entry choices and to evaluate aggregate effects, we estimate a general equilibrium firm dynamics model using BDS data. We find that even for older firms, the aggregate state at birth drives the vast majority of variations in employment across cohorts of the same age. The key force behind this result are fluctuations in the composition of startup cohorts with respect to firms' potential to grow large. At the aggregate level, factors determined at the startup phase account for the large low-frequency fluctuations observed in the employment rate.

Keywords: firm dynamics; heterogeneous agents; maximum likelihood; DSGE (search for similar items in EconPapers)
JEL-codes: E32 L11 M13 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2014-01-06
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ent and nep-mac
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Citations: View citations in EconPapers (24)

Downloads: (external link)
http://eprints.lse.ac.uk/58223/ Open access version. (application/pdf)

Related works:
Journal Article: The Growth Potential of Startups over the Business Cycle (2017)
Working Paper: The Growth Potential of Startups over the Business Cycle (2014)
Working Paper: The growth potential of startups over the business cycle (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:58223

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