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  4. October 2017
  5. The Growth Potential of Startups over the Business Cycle

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

The Growth Potential of Startups over the Business Cycle

  • Petr Sedláček
  • Vincent Sterk
American Economic Review
vol. 107, no. 10, October 2017
(pp. 3182–3210)
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Abstract

This paper shows that employment in cohorts of US firms is strongly influenced by aggregate conditions at the time of their entry. Employment fluctuations of startups are procyclical, they persist into later years, and cohort-level employment variations are largely driven by differences in firm size, rather than the number of firms. An estimated general equilibrium firm dynamics model reveals that aggregate conditions at birth, rather than post-entry choices, drive the majority of cohort-level employment variation by affecting the share of startups with high growth potential. In the aggregate, changes in startup conditions result in large, slow-moving fluctuations in employment.

Citation

Sedláček, Petr, and Vincent Sterk. 2017. "The Growth Potential of Startups over the Business Cycle." American Economic Review, 107 (10): 3182–3210. DOI: 10.1257/aer.20141280

Additional Materials

JEL Classification

  • D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E32 Business Fluctuations; Cycles
  • J23 Labor Demand
  • L25 Firm Performance: Size, Diversification, and Scope
  • M13 New Firms; Startups