Entry, exit and plant-level dynamics over the business cycle

Yoonsoo Lee () and Toshihiko Mukoyama

No 718, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: 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.

Keywords: Business cycles; Manufacturing industries (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ent, nep-mac and nep-tid
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Citations: View citations in EconPapers (69)

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Related works:
Working Paper: Entry, Exit, and Plant-Level Dynamics over the Business Cycle (2008)
Working Paper: Entry, Exit, and Plant-level Dynamics over the Business Cycle (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:0718

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