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Born in bad times: Economic conditions, selection and employment

Author

Listed:
  • Lynda Sanderson

    (Productivity Commission)

Abstract

Periods of recession can have long term impacts on the economy. Entry rates decline during recessions, depressing aggregate job creation in future. At the same time, conditions at entry may also affect long-run growth prospects at the firm level. This paper explores patterns of firm birth, growth, and death for cohorts of New Zealand firms born between 2002 and 2015, and examines the role of selection for explaining those patterns. Firms born in "bad times" - the years of and immediately following the Global Financial Crisis - are shown to start out, and remain, smaller than comparable firms born in more buoyant economic circumstances. Industry composition, firm type, and the characteristics of entrepreneurs are shown to vary across the economic cycle but cannot fully explain the size gap. While firm size gaps are small in absolute terms, as entering firms tend to be very small regardless of the economic conditions, when aggregated across firms these small employment gaps can lead to sizeable reductions in cohort employment.

Suggested Citation

  • Lynda Sanderson, 2024. "Born in bad times: Economic conditions, selection and employment," Working Papers 2024/01, New Zealand Productivity Commission.
    • Handle: RePEc:ayz:wpaper:24_01
    as

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    File URL: https://www.productivity.govt.nz/assets/Documents/Sanderson_born-in-bad-times.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    firm dynamics; entrepreneurship; employment; age-period-cohort (APC) model; start-ups; Global Financial Crisis (GFC);
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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