Discussion Paper Details

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Title: New Business Start-ups and the Business Cycle

Author(s): Melvyn G Coles and Ali Moghaddasi Kelishomi

Publication Date: October 2011

Keyword(s): aggregate dynamics, equilibrium unemployment and startups

Programme Area(s): Labour Economics

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.

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Bibliographic Reference

Coles, M and Kelishomi, A. 2011. 'New Business Start-ups and the Business Cycle'. London, Centre for Economic Policy Research.