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Lost generations of firms and aggregate labor market dynamics

Petr Sedlacek ()

Journal of Monetary Economics, 2020, vol. 111, issue C, 16-31

Abstract: Can the unprecedented lack of startups during the U.S. Great Recession have persistently negative effects? While fewer firms hiring workers can mechanically reduce employment for many years, this may be offset by feedback effects on lower wages, slacker labor markets and higher profits. An estimated model of firm dynamics and frictional labor markets suggests that such feedback effects are too weak to offset the direct impact of fewer startups. Had firm entry remained constant during the Great Recession, output would have recovered 4–6 years earlier and unemployment would have been 0.5 percentage points lower even 10 years after the crisis.

Keywords: Firm age; Firm dynamics; Heterogeneous firms; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 E32 J64 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jmoneco.2019.01.007

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