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Periodic Essay
Reflections: Small Businesses
An enviable aspect of the U.S. economy around the globe is our spirit of innovation, entrepreneurship, ease of business entry and exit, and labor market flexibility. These are key attributes of a dynamic economy, one that offers opportunities for people to live good and productive lives. Entrepreneurship – setting up and running one’s own business – has always been part of the narrative of the American dream, an avenue to creating and growing wealth, contributing to the community, and leaving a legacy for one’s family.
Firms Start with Fewer Employees over Last 25 Years
The average new firm that is less than a year old had 20% fewer workers in 2019 than it did in 1994.
Report
Grown-up business cycles
We document two striking facts about U.S. firm dynamics and interpret their significance for employment dynamics. The first is the dramatic decline in firm entry and the second is the gradual shift of employment toward older firms since 1980. We show that despite these trends, the lifecycle dynamics of firms and their business cycle properties have remained virtually unchanged. Consequently, aging is the delayed effect of accumulating startup deficits. Together, the decline in the employment contribution of startups and the shift of employment toward more mature firms contributed to the ...
Report
The Great Recession, entrepreneurship, and productivity performance
In recent years, it is argued, the level of entrepreneurial activity in the United States has declined, causing concern because of its potential macroeconomic implications. In particular, it is feared that a lower rate of firm creation may be associated with lower productivity growth and, hence, lower economic growth in the coming years. This paper studies the issue, focusing on the dynamics of entrepreneurship and productivity around the time of the Great Recession. The author looks first at the recent evolution of alternative measures of entrepreneurship and of productivity, and then ...
Report
Wealth, tastes, and entrepreneurial choice
The nonpecuniary benefits of managing a small business are a first order consideration for many nascent entrepreneurs, yet the preference for business ownership is mostly ignored in models of entrepreneurship and occupational choice. In this paper, we study a population with varying entrepreneurial tastes and wealth in a simple general equilibrium model of occupational choice. This choice yields several important results: (1) entrepreneurship can be thought of as a normal good, generating wealth effects independent of any financing constraints; (2) nonpecuniary entrepreneurs select into ...
Working Paper
Financial Constraints of Entrepreneurs and the Self-Employed
Growth-oriented entrepreneurial start-ups generate more economic growth than other self-employed businesses, yet they only constitute a small fraction of start-ups. We examine whether financial constraints impede these types of start-ups by exploiting lottery wins as exogenous wealth shocks. We find that lottery-win magnitude increases winners? subsequent incorporation, implying that entrepreneurs face financial constraints, but not business registration, implying that financial constraints do not bind as much for the self-employed. Our results, that financial constraints bind for ...
Journal Article
Growing Rural America Through Startups
Rural places, by many measures, have tended to be less vibrant economically than metro areas, on average. Some small towns looking to create more job opportunities have tried to attract large businesses, while others have leaned on their natural amenities to draw residents and tourists. But another, less obvious, approach is in the running: entrepreneurship. New businesses contribute disproportionately to job and productivity growth, providing numerous benefits to a local community.
Working Paper
COVID-19 and SMEs: A 2021 "Time Bomb"?
This paper assesses the prospects of a 2021 time bomb in small and medium-sized enterprises (SME) failures triggered by the generous support policies enacted during the 2020 COVID-19 crisis. Policies implemented in 2020, on their own, do not create a 2021 time bomb for SMEs. Rather, business failures and policy costs remain modest. By contrast, credit contraction poses significant risk. Such a contraction would disproportionately affect firms that could have survived COVID-19 in 2020 without any fiscal support. Even in that scenario, most business failures would not arise from excessively ...
Journal Article
Are Tax Incentives the Answer to More Job Creation?
You can't discuss job creation without talking about entrepreneurship ? and that is a hot topic right now. Television shows such as Shark Tank and the film The Social Network have elevated the popularity of entrepreneurship in America. Alongside this media and entertainment interest is the explosive growth in college-level entrepreneurship education programs, which have increased from about 250 in 1985 to more than 5,000 in recent years.
Working Paper
The Role of Startups for Local Labor Markets
We investigate the dynamic response of local U.S. labor markets to increased job creation by new firms and compare the effects to overall labor demand shocks. To account for both dynamic and spatial dependence we develop a spatial panel VAR that builds on recent advances in the VAR literature to identify structural shocks using external instruments. We find that startup shocks have a small but persistent effect on local employment through population growth. Population growth, in turn, is largely driven by immigration. We also investigate how the responses differ by local characteristics such ...