Does Goliath Help David? Anchor Firms and Startup Clusters

20-17 Working Papers, Center for Economic Studies, U.S. Census Bureau

Georgetown McDonough School of Business Research Paper No. 3616337

71 Pages Posted: 10 Jun 2020 Last revised: 7 Aug 2020

Date Written: 2020

Abstract

This paper investigates the effects of a large firm's geographical expansion (anchor firm) on local worker transitions into young firms through wage effects in industries economically proximate to the anchor firm. Using hand-collected data matched to administrative Census microdata, I exploit anchor firms' site selection processes to employ a difference-in-differences approach to compare workers in winning counties to those in counterfactual counties. The arrival of an anchor firm induces worker reallocation towards young firms in industries linked through input-output channels by a magnitude of 120 new businesses that account for approximately 2,300 jobs. Consistent with the literature in personnel and organizational economics, incumbent firms experiencing the fastest wage growth due to these shocks shed mid-layer employees who select into or start local young firms in connected and occupationally similar industries. These effects are strongest on workers employed in the most specialized and knowledge-intensive industries. Attracting an anchor firm to a county appears to have limited spillover effects in overall employment that are mainly driven by reorganization of incumbent firms in the anchor's input-output industries that face rising labor costs.

Keywords: Anchor firms, startups, entrepreneurship, labor mobility, personnel economics, economic geography, agglomeration

JEL Classification: J61, J62, M51, R12

Suggested Citation

Gupta, Rahul, Does Goliath Help David? Anchor Firms and Startup Clusters (2020). 20-17 Working Papers, Center for Economic Studies, U.S. Census Bureau, Georgetown McDonough School of Business Research Paper No. 3616337, Available at SSRN: https://ssrn.com/abstract=3616337 or http://dx.doi.org/10.2139/ssrn.3616337

Rahul Gupta (Contact Author)

Georgetown University ( email )

37th and O Streets, NW
Washington, DC 20057
United States

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