The Relationship between the Establishment Age Distribution and Urban Growth
R. Jason Faberman
Federal Reserve Bank of Chicago; Bureau of Labor Statistics - Office of Employment and Unemployment Statistics
FRB of Philadelphia Working Paper No. 07-18
This paper presents new evidence on the relationship between a metropolitan area's employment growth and its establishment age distribution. The author finds that cities with a relatively younger distribution of establishments tend to have higher growth, as well as higher job and establishment turnover. Geographic variations in the age distribution account for 38 percent of the geographic differences in growth, compared to the 32 percent accounted for by variations in industry composition. Differences are disproportionately accounted for by entrants and young (5 years or younger) establishments. Furthermore, the relationship between age and growth is robust to controls for urban diversity and education. Overall, the results support a microfoundations view of urban growth, where the benefits of agglomeration affect firms not through some production externality but through a process that determines which firms enter, exit, and thrive at a given location.
Number of Pages in PDF File: 38
Keywords: Establishment age, Urban growth and agglomeration, Firm dynamics, Job reallocation
JEL Classification: E24, J63, R11
Date posted: August 16, 2007
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