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

Peter Huber (), Harald Oberhofer () and Michael Pfaffermayr ()

No 2013-5, Working Papers in Economics from University of Salzburg

Abstract: 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.

Keywords: DHS job creation rate; firm size; firm age; maximum likelihood estimation; three-part model; multi-part model; Monte Carlo simulation (search for similar items in EconPapers)
JEL-codes: C18 C53 D22 E24 L25 L26 M13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ent, nep-lab, nep-lma, nep-mac and nep-sbm
Date: 2013-11-15
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Working Paper: Who Creates Jobs? Estimating Job Creation Rates at the Firm Level (2012) Downloads
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