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The Role of Startups for Local Labor Markets

Author

Abstract
We investigate the dynamic response of local U.S. labor markets to increased job creation by new firms and compare the effects to overall labor demand shocks. To account for both dynamic and spatial dependence we develop a spatial panel VAR that builds on recent advances in the VAR literature to identify structural shocks using external instruments. We find that startup shocks have a small but persistent effect on local employment through population growth. Population growth, in turn, is largely driven by immigration. We also investigate how the responses differ by local characteristics such as population density. Finally, we show that startups are not closely linked to innovation.

Suggested Citation

  • Gerald A. Carlino & Thorsten Drautzburg, 2017. "The Role of Startups for Local Labor Markets," Working Papers 17-31, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:17-31
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    Cited by:

    1. Drautzburg, Thorsten, 2019. "Entrepreneurial tail risk: Implications for employment dynamics," Journal of Monetary Economics, Elsevier, vol. 104(C), pages 85-100.
    2. Millimet, Daniel L., 2024. "(Don't) Walk This Way: The Econometrics of Crosswalks," IZA Discussion Papers 17154, Institute of Labor Economics (IZA).
    3. Yu, Jisang & Villoria, Nelson B. & Hendricks, Nathan P., 2022. "The incidence of foreign market tariffs on farmland rental rates," Food Policy, Elsevier, vol. 112(C).

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    Keywords

    Startups; entrepreneurship; local labor markets; proxy VAR; spatial panel VAR;
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