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

University of Salzburg, Economics and Finance Working Paper No. 2013-05

31 Pages Posted: 31 Aug 2012 Last revised: 15 Nov 2013

See all articles by Peter Huber

Peter Huber

Austrian Institute of Economic Research (WIFO); Mendel University

Harald Oberhofer

Vienna University of Economics and Business - Department of Economics; Austrian Institute of Economic Research (WIFO)

Michael Pfaffermayr

University of Innsbruck - Department of Economics; Austrian Institute of Economic Research

Date Written: November 15, 2013

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

JEL Classification: C18; C53; D22; E24; L25; L26; M13

Suggested Citation

Huber, Peter and Oberhofer, Harald and Pfaffermayr, Michael, Who Creates Jobs? Estimating Job Creation Rates at the Firm Level (November 15, 2013). University of Salzburg, Economics and Finance Working Paper No. 2013-05, Available at SSRN: https://ssrn.com/abstract=2138765 or http://dx.doi.org/10.2139/ssrn.2138765

Peter Huber

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Mendel University ( email )

Zemedelska 1
Brno, South Moravia 61200
Czech Republic

Harald Oberhofer (Contact Author)

Vienna University of Economics and Business - Department of Economics ( email )

Welthandelsplatz 1
A-1020 Vienna
Austria

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Michael Pfaffermayr

University of Innsbruck - Department of Economics ( email )

Universitaetsstrasse 15
A-6020, Innsbruck
Austria
+43 512 507 7359 (Phone)

HOME PAGE: http://homepage.uibk.ac.at/~c43236/

Austrian Institute of Economic Research ( email )

P.O. Box 91
Wien, A-1103
Austria
+43 1 798 26 01-253 (Phone)
+43 1 798 93 86 (Fax)

HOME PAGE: http://www.wifo.ac.at/Michael.Pfaffermayr/

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