Working Paper: CEPR ID: DP10118
Authors: Karen Geurts; Johannes Van Biesebroeck
Abstract: Firm turnover and growth recorded in administrative data sets differ from underlying firm dynamics. By tracing the employment history of the workforce of new and disappearing administrative firm identifiers, we can accurately identify de novo entrants and true economic exits, even when firms change identifier, merge, or split-up. For a well-defined group of new firms entering the Belgian economy between 2004 and 2011, we find highly regular post-entry employment dynamics in spite of the volatile macroeconomic environment. Exit rates decrease with age and size. Surviving entrants record high employment growth that is monotonically decreasing with age in every size class. Most remarkably, we find that Gibrat?s law is violated for very young firms. Conditional on age, the relationship between employment growth and current size is strongly and robustly positive. This pattern is obscured, or even reversed, when administrative entrants and exits are taken at face value. De novo entrants? contribution to job creation is relatively small and not very persistent, in particular for (the large majority of) new firms that enter with fewer than five employees.
Keywords: employment growth; firm dynamics; Gibrat's law
JEL Codes: E24; L16; L25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| larger young firms (L26) | lower exit rates (J63) |
| firm size (L25) | survival rates (C41) |
| firm age (L10) | survival rates (C41) |
| size and age (L25) | exit rates (J63) |
| employment growth (O49) | current size conditional on age (J19) |
| age (J14) | growth rates of surviving young firms (L26) |
| de novo entrants (M13) | job creation (J68) |
| de alio entrants (Y20) | job creation (J68) |