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The growth potential of startups over the business cycle

Sedlacek, Petr and Sterk, Vincent (2014) The growth potential of startups over the business cycle. CFM discussion paper series (CFM-DP2014-3). Centre For Macroeconomics, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information: © 2014 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
JEL classification: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M13 - Entrepreneurship
Sets: Collections > Economists Online
Research centres and groups > Centre for Macroeconomics
Date Deposited: 24 Jul 2014 13:07
Last Modified: 20 Feb 2019 03:47
URI: http://eprints.lse.ac.uk/id/eprint/58223

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