Working Paper: CEPR ID: DP18442
Authors: Daniel Bias; Alexander Ljungqvist
Abstract: We combine novel micro data with the quasi-random timing of patent decisions over the business cycle to estimate the effects of being born in the Great Recession on innovative startups. After purging ubiquitous selection biases and sorting effects, we find that recession startups experience better long-term outcomes in terms of employment and sales growth (both driven by lower mortality) and future inventiveness. While funding conditions cannot explain differences in outcomes, a labor market channel can: recession startups are better able to retain their founding inventors and build productive R\&D teams around them.
Keywords: startups; innovation; patents; great recession; scarring; labor mobility
JEL Codes: G01; L26; M13; O34; E32; G24; J62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Being born during the Great Recession (J19) | Better long-term outcomes in terms of employment and sales growth (L25) |
| Being born during the Great Recession (J19) | Lower mortality rates (I14) |
| Being born during the Great Recession (J19) | Enhanced future inventiveness (O36) |
| Being born during the Great Recession (J19) | Cumulative employment growth (O49) |
| Being born during the Great Recession (J19) | Cumulative sales growth (D25) |
| Recession startups (M13) | Retaining founding inventors (O36) |
| Recession startups (M13) | Building productive R&D teams (O36) |
| Recession startups (M13) | Greater innovation and market success (O36) |
| Being born during the Great Recession (J19) | Positive effects on innovative startups in the long run (O35) |