The Growth and Human Capital Structure of New Firms Over the Business Cycle

42 Pages Posted: 8 Dec 2016

See all articles by Udo Brixy

Udo Brixy

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Martin Murmann

Centre for European Economic Research (ZEW)

Date Written: December 1, 2016

Abstract

Recent research suggests that employment in young firms is more negatively impacted during economic downturns than employment in incumbent firms. This questions the effectiveness of policies that promote entrepreneurship to fight crises. We complement prior research that is mostly based on aggregate data by analyzing cyclical effects at the firm level. Using new linked employer-employee data on German start-ups we show that under constant human capital of the firms' founders, employment growth in less than 1 1/2-year-old start-ups reacts countercyclically and employment growth in older start-ups reacts procyclically. The young start-ups realize their countercyclical growth by hiring qualified labor market entrants who might be unable to find employment in incumbent firms during crises. This mechanism is highly important in economic and management terms and has not been revealed by prior research.

Keywords: Firm growth, Entrepreneurship, Business cycle, Crisis

JEL Classification: E32, J23, L26, M13, L25, L11, D22

Suggested Citation

Brixy, Udo and Murmann, Martin, The Growth and Human Capital Structure of New Firms Over the Business Cycle (December 1, 2016). ZEW - Centre for European Economic Research Discussion Paper No. 16-079, Available at SSRN: https://ssrn.com/abstract=2882497 or http://dx.doi.org/10.2139/ssrn.2882497

Udo Brixy

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Martin Murmann (Contact Author)

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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