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The role of startups for local labor markets
Author(s) -
Carlino Gerald,
Drautzburg Thorsten
Publication year - 2020
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2783
Subject(s) - productivity , vector autoregression , job creation , economics , variance (accounting) , structural vector autoregression , population , labour economics , econometrics , monetary economics , macroeconomics , monetary policy , accounting , demography , sociology
Summary There are substantial differences in startup activity across US local labor markets. We study the causes and consequences of these differences. Startup productivity shocks are found to drive much of these cross‐city differences in startup activity. Examples of such shocks include breakthroughs in biotech that spurred startup formation in San Diego and Philadelphia. Overall, these shocks explain half of the forecast error variance of startup job creation, accounting for 40% of population growth and long‐run changes in employment. Shocks to barriers to firm entry have economy‐wide effects similar to those of startup productivity shocks but operate largely through the number of startups, rather than their size. We use a novel spatial panel vector autoregression, identifying shocks using shift–share external instruments.