Essays on Firm Dynamics and Job Creation
Haltiwanger, John C.
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I describe two studies on firm dynamics and job creation. In Chapter 1, I identify a key predictor of the early growth trajectory of young firms: the outside options of the business founders. I show that entrepreneurs with higher outside options as paid workers tend to take larger business risks, and thus exhibit a more up-or-out type of firm dynamics. I find empirical support for the model's predictions using a large founder-firm matched data set built from administrative databases of the U.S. Census Bureau. I find that controlling for past business performance, young firms operated by entrepreneurs with higher outside options exhibit (i) higher firm exit rates, (ii) more growth dispersion, and (iii) faster growth conditioning on survival. With the calibrated model, I find that deterioration in the outside options of entrepreneurs can have a sizable negative impact on aggregate output and productivity via lower risk-taking by young firms and slower growth in their life cycle. These findings indicate that the expected post-failure outcomes of entrepreneurs are an important factor that governs young firm growth as well as aggregate output and productivity. Chapter 2 studies how firms' lobby behavior affects the allocation of federal procurement contracts during the fiscal stimulus period and the magnitude of the local job creation effect. Using the allocation of contracts under the American Recovery and Reinvestment Act (ARRA) as a laboratory, it is shown that among firms with a similar propensity to lobby on ARRA in 2009, those firms that actually lobbied on ARRA-related bills won 5\% more contracts and 50\% larger contracts than firms that did not. We further investigate whether procurement spending channeled through lobbying firms has a differential impact on MSA-level employment growth. We find that \$1 million procurement spending yields on average of 11.5 jobs, and that the effect is entirely driven by contracts channeled through non-lobbying firms. While procurement channeled through lobbying firms has no significant impact on job creation, \$1 million in procurement spending through non-lobbying firms yields 16 jobs.