Great Recession Babies: How Are Startups Shaped by Macro Conditions at Birth?

Abstract

We combine novel micro data with the quasi-random timing of patent decisions over the business cycle to estimate the effects of being born in the Great Recession on innovative startups. After purging ubiquitous selection biases and sorting effects, we find that recession startups experience better long-term outcomes in terms of employment and sales growth (both driven by lower mortality) and future inventiveness. While funding conditions cannot explain differences in outcomes, a labor market channel can: recession startups are better able to retain their founding inventors and build productive R&D teams around them.

Keywords: Startups, Innovation, Great Recession, Scarring, Patents, R&D, Labor Mobility

JEL Classification: G01, L26, M13, O34, E32, G24, J62