UCL Department of Economics


Today's startups to outgrow those of the Great Recession

27 June 2017

In this forthcoming AEA article authors Petr Sedláček (Bonn) and Vincent Sterk (UCL) explain why most of the 2 million startups born during the Great Recession probably won't grow as large as today's startups.

The Growth Potential of Startups over the Business Cycle

The paper shows that employment in cohorts of US firms is strongly influenced by aggregate conditions at the time of their entry. Employment fluctuations of startups are pro-cyclical, they persist into later years and cohort-level employment variations are largely driven by differences in firm size, rather than the number of firms. An estimated general equilibrium firm dynamics model reveals that aggregate conditions at birth, rather than post-entry choices, drive the majority of cohort-level employment variation, by affecting the share of startups with high growth potential. In the aggregate, changes in startup conditions result in large slow- moving fluctuations in employment.

A full draft of the paper is available to AEA members here