Firm Entry and Employment Dynamics in the Great Recession

57 Pages Posted: 9 Nov 2012 Last revised: 2 May 2016

See all articles by Michael Siemer

Michael Siemer

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2016

Abstract

New business creation declined an unprecedented amount during the Great Recession. I argue that financial constraints led to a contraction in young, small firms, which contributed greatly to the slow recovery. Using confidential firm-level data of the universe of firms and a difference-in-differences methodology, I estimate that financial constraints reduced employment growth in small firms relative to large firms by 5 to 10 percentage points, even after controlling for aggregate demand. I then show in a heterogeneous firm model with endogenous entry that a large financial shock reduces firm entry, creating a “missing generation” of firms and a slow recovery.

Keywords: employment, firm entry, financial crisis, small business, financial friction, business cycles, slow recovery

JEL Classification: E24, E32, E44, G01, L25, J2

Suggested Citation

Siemer, Michael, Firm Entry and Employment Dynamics in the Great Recession (February 1, 2016). Available at SSRN: https://ssrn.com/abstract=2172594 or http://dx.doi.org/10.2139/ssrn.2172594

Michael Siemer (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.michael-siemer.com

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