Working Paper: CEPR ID: DP8588
Authors: Melvyn G. Coles; Ali Moghaddasi Kelishomi
Abstract: This paper considers new business start-up activity within a stochastic equilibrium model of unemployment. The resulting job creation process is both natural and tractable, and generates equilibrium unemployment and vacancy dynamics which match the volatility and persistence observed in the data. The insight is that the standard Diamond/Mortensen/Pissarides matching framework works beautifully once the free entry of vacancies assumption is replaced by a model of business start-up activity. The approach is particularly important as it is demonstrated that a large part of net job creation in the U.S. economy can be attributed to new business start-ups.
Keywords: aggregate dynamics; equilibrium unemployment; startups
JEL Codes: E24; E32; J63; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| new business startups (M13) | net job creation (J23) |
| business startup model (M13) | job creation process (J23) |
| business startup model (M13) | equilibrium unemployment and vacancy dynamics (J69) |
| inertia in the business startup process (M13) | dynamics of unemployment and vacancies (J69) |
| lag in job creation (J23) | high unemployment following job destruction shocks (J64) |